Hot Hand Fallacy
The hot hand fallacy is the belief that long streaks are bound to continue, failing to account for systematic reasons or the statistical independence of events. It’s similar to the gambler’s fallacy, only here one is expecting excessive persistence rather than reversals.
The hot hand fallacy also creates the momentum effect, where investors keep investing in a stock, thinking it’s bound to keep rising. The buying itself pushes the price even higher, long after the fundamental reason for the initial rise (e.g. a new product launch) has passed.
The basketball player
Believing that a basketball player that makes four 3-pointers in a row will keep his streak going. While it is true that their increased confidence plays a role, (a) the next shots are statistically independent from the previous ones and (b) the game (i.e. the opposing team defense) will also adapt to the initial streak; the player’s final game shooting accuracy will likely end up within the natural variance of their skill level.
Also relates to: Gambler’s Fallacy · Extrapolation Bias · Law of Small Numbers · Overconfidence · Information Cascades