Texas Sharpshooter Fallacy

DEFINITION of 'Texas Sharpshooter Fallacy'

An analysis of outcomes out of context that can give the illusion of causation rather than attributing the outcomes to chance. The Texas sharpshooter fallacy fails to take randomness into account when determining cause and effect, instead emphasizing how outcomes are similar rather than how they are different.

The Texas sharpshooter fallacy takes its name from a gunman who shoots at a side of a barn, only later to draw targets around a cluster of points that were hit. The gunman didn’t aim for the target specifically (instead aiming for the barn), but outsiders might believe that he meant to hit the target.

BREAKING DOWN 'Texas Sharpshooter Fallacy'

The fallacy outlines how people can ignore randomness when determining whether results are meaningful. Investors may fall prey to the Texas sharpshooter fallacy when evaluating portfolio managers. By focusing on trades and strategies that a manager got right, the investor may inadvertently disregard what the manager didn’t do well. For example, the clients of a portfolio manager may have seen positive returns during an economic crisis, which may make the manager seem like someone who predicted the downturn.

Another example of the fallacy is an entrepreneur who creates many failed businesses, but a single successful one. The businessman touts his entrepreneurial capabilities while de-emphasizing that he had many failed attempts. This can give the false impression that the businessman was always successful, while ignoring the many times he was not.

RELATED TERMS
  1. Lump Of Labor Fallacy

    The assumption that the quantity of labor required in an overall ...
  2. Gambler's Fallacy

    When an individual erroneously believes that the onset of a certain ...
  3. Base Rate Fallacy

    Base rate fallacy, or base rate neglect, is a cognitive error ...
  4. Outcome Bias

    A decision based on the outcome of previous events without regard ...
  5. Attribution Analysis

    A performance-evaluation tool used to analyze the abilities of ...
  6. Money Illusion

    An economic theory stating that many people have an illusory ...
Related Articles
  1. Trading

    Behavioral Finance: Key Concepts - Gambler's Fallacy

    By Albert PhungKey Concept No. 4: Gambler's FallacyWhen it comes to probability, a lack of understanding can lead to incorrect assumptions and predictions about the onset of events. One of these ...
  2. Markets

    Buy Stocks Now? Nope. Here’s Why

    Hedgeye Senior Macro analyst Darius Dale explains the fallacy of Wall Street’s S&P 500 year-end targets.
  3. Markets

    American Recession: What's happening in Texas?

    Learn why the oil bust may not mean disaster for Texas' economy and discover what Texas has done to prepare for the downturn.
  4. ETFs & Mutual Funds

    Looking To Invest In Texas? Here Is How

    Ranging from energy to household names, here are some of the top investment opportunities in Texas.
  5. Markets

    Black Gold In JR Ewing Country: Texas' Oil Economy

    The economy of Texas is soaring because of oil and oil-derivated products and services, but is that sustainable with the sharp drop in crude oil prices?
  6. Trading

    Random Reinforcement: Why Most Traders Fail

    This phenomenon can cause a trader to abandon a proven strategy or risk everything on chance. Find out how to avoid it.
  7. Markets

    Is Texas The Future Of America?

    The top three fastest-growing cities are located in Texas and 20% of jobs created between 2009 and 2014 were in the Lone Star State.
  8. Markets

    Texas' Economy: The 9 Industries Driving GDP Growth

    Find out which industries are driving the Texas economy. Learn about the largest and fastest growing employers and producers in Texas.
  9. Markets

    Texas Ratio Rounds Up Bank Failures

    This measure can help investors spot potential trouble in a bank's financials. Find out how.
  10. Trading

    5 Mental Mistakes That Affect Stock Analysts

    They know more about stocks than the average person, but analysts are still affected by biases. Find out what they are.
RELATED FAQS
  1. What are common examples of bad decisions made due to the sunk cost fallacy?

    Learn more about the ways some businesses reject proper analysis in favor of the sunk cost fallacy, and discover ways to ... Read Answer >>
  2. What is the broken window fallacy?

    The broken window fallacy was first expressed by the great French economist, Frederic Bastiat. Bastiat used the parable of ... Read Answer >>
  3. How can you avoid the sunk cost trap?

    Read out how the sunk cost trap works, an example of how it affects decision-making and how to avoid it when making economic ... Read Answer >>
  4. What is the cost of living difference between Texas and California?

    Find out how MIT data indicates that Californians need to earn nearly 28 percent more than Texans to afford the same goods ... Read Answer >>
  5. What is the difference between Brent Crude and West Texas Intermediate?

    Discover the difference between Brent Crude and West Texas Intermediate. Both tend to trade together, but they can deviate ... Read Answer >>
  6. What is the "random walk theory" and what does it mean for investors?

    The random walk theory is the occurrence of an event determined by a series of random movements - in other words, events ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center