When an economist and a pop star explained economic theory
Yup… A couple of years ago, The Big Short made a big splash in the Hollywood circles when in a rather funny and entertaining way, reminded us of a dark period of the world history. The 2007 housing market crash and the years leading up to it.
The Adam McKay’s biographical comedy-drama was noted for the unconventional techniques it employs to explain complex financial instruments. Among others, the movie featured cameo appearances by Margot Robbie, Anthony Bourdain, Selena Gomez and Richard Thaler, who broke the fourth wall to explain concepts such as subprime mortgages and collateralized debt obligations as a meta-reference.
Well, right now I want to remind of one such cameo appearance. That of Richard Thaler, this year’s winner of the Nobel Prize for economy. Alongside Selena Gomez he tried to explain the hot-hand fallacy (also known as the “hot hand phenomenon” or “hot hand”). It’s the sometimes fallacious belief that a person who has experienced success with a seemingly random event has a greater chance of further success in additional attempts. The concept has been applied primarily to sports, such as basketball.
While previous success at a skill-based athletic task, such as making a shot in basketball, can change the psychological behavior and subsequent success rate of a player, researchers for many years did not find evidence for a “hot hand” in practice.
How did Richard Thaler and Selena Gomez explanation went? Take a look for yourself with this casino clip from The Big Short.