Baccarat is the world’s most popular card game. It is played in casinos around the globe, with variations depending on culture and region. One of the game’s enduring attractions is its high profitability potential. It’s a favorite of the elite and high-rollers, with the game’s top payouts attracting hordes of deep-pocketed bettors. One such player was Kerry Packer, who dropped $20 million at baccarat tables at Caesars Palace during a visit in 2000. Even such mega-wagers, however, can only put a dent in the long-term take that casinos enjoy from the game.
The game consists of placing wagers on the outcome of two hands—a player hand and a banker hand. The aim is to bet on the hand with a total value closer to nine than the other. Players and the croupier each receive two cards, and the dealer follows specific rules to determine whether a third card is drawn for either the player or banker hand. If the first two cards produce a winning Player or Banker hand, all placed bets are paid out. The remaining bets are settled based on the odds of winning a third-card draw. The simplest bet, Player, pays 8-to-1 and is the most commonly placed bet. There is also a banker-only bet and a tie bet, but the former has a much larger house edge than the other two, so serious players stick to Player or Banker.
Despite its popularity and simplicity, there are many misconceptions about the game that can lead to bad betting decisions. For example, some players believe that a streak of consecutive wins or losses is a sign of a pattern and expect the trend to continue (positive recency). Others mistakenly assume that short sequences are random and that each outcome balances out the prior ones (negative recency).
Our research shows that these misperceptions can have real consequences in baccarat. Specifically, we found that customers tend to follow the prevailing trend of player or banker wins when betting (Analysis 1). This pattern is consistent with the hot-outcome fallacy and is supported by the results of Experiment 1, which indicate that people are more likely to attribute sequences with more streaks to human performance and less frequent streaks to chance processes, such as coin tosses or roulette (Tversky and Kahneman, 1971; Ayton & Fischer, 2004).
These findings support the hypothesis that social and environmental factors unique to baccarat may promote these biased decision-making mechanisms. Indeed, a number of studies have shown that individuals are more likely to adopt risky behavior when observing the actions of other gamblers and in highly stimulating casino environments (Rabin, 2002). Moreover, our experiments show that the tendency to follow trends in baccarat can be overcome with proper training. However, the exact mechanisms that underlie these biases remain to be elucidated. As such, future research should explore the role of these influencing factors. For example, the sensitivity of probability learning to small samples and other biases, such as the law of small numbers (Ayton & Fischer, 2004), could contribute to positive recency in baccarat.