Stock market investors make too many decisions based on the so-called gambler’s fallacy, according to a recent study by German researchers.

Earlier this year, the Ostfalia University in Wolfsburg published the results of a study into the decision-making process of capital investors. The study provided 188 test subjects with a limited supply of ‘play dollars’ then presented them with a number of investment options containing varying degrees of risk.

The researchers were looking for signs of three separate phenomena: herding, which involves mimicking the decisions made by a majority of players or the most successful player; status-quo bias, in which players choose not to take any action based on the fear of regretting their actions; and the gambler’s fallacy, in which players expect a certain outcome based on a history of previous outcomes.

Other studies have shown that problem gamblers are more likely than non-problem gamblers to see patterns in random events where no pattern exists, i.e. these gamblers convince themselves that because a roulette wheel has returned a ‘red’ result in each of the last nine spins, a ‘black’ result is more likely on the next spin, despite the outcome of every spin being completely random.