Perceptions of randomness: Why three heads are better than four.

A long tradition of psychological research has lamented the systematic errors and biases in people's perception of the characteristics of sequences generated by a random mechanism such as a coin toss. It is proposed that once the likely nature of people's actual experience of such processes is taken into account, these "errors" and "biases" actually emerge as apt reflections of the probabilistic characteristics of sequences of random events. Specifically, seeming biases reflect the subjective experience of a finite data stream for an agent with a limited short-term memory capacity. Consequently, these biases seem testimony not to the limitations of people's intuitive statistics but rather to the extent to which the human cognitive system is finely attuned to the statistics of the environment.