What does the gambler's fallacy illustrate about human perception?

The gambler's fallacy illustrates that people wrongly project a reversal to a long-term mean. This concept highlights the tendency of individuals to believe that past independent events can influence future outcomes in random situations, particularly in gambling scenarios. For example, if a fair coin has landed on heads several times in a row, someone might incorrectly believe that tails is "due" to occur, as they expect the outcomes to balance out in the short term. This misconception stems from a misunderstanding of statistical independence and probability, leading individuals to presume a reversion to a mean that does not necessarily exist in random sequences.

In this context, while the idea of individuals analyzing probabilities correctly is appealing, the gambler's fallacy demonstrates the opposite. Additionally, while many people may recognize randomness, the fallacy specifically reveals how that understanding can be clouded by the desire for patterns in random data. Lastly, overanalyzing past events is a common behavior but is not the core lesson of the gambler's fallacy, which is focused more on the flawed expectations regarding future events based on prior outcomes.