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Why Do People Pay for Useless Advice?

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  • Nattavudh Powdthavee
  • Yohanes E. Riyanto

Abstract

We investigated experimentally whether people can be induced to believe in a non-existent expert, and subsequently pay for what can only be described as transparently useless advice about future chance events. Consistent with the theoretical predictions made by Rabin (2002) and Rabin and Vayanos (2010), we show empirically that the answer is yes and that the size of the error made systematically by people is large.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1153.

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Date of creation: Jun 2012
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Handle: RePEc:cep:cepdps:dp1153

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Behavioral finance; hot-hand; random streak; expertise; information;

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  1. Matthew Rabin., 2000. "Inference by Believers in the Law of Small Numbers," Economics Working Papers E00-282, University of California at Berkeley.
  2. Jorgensen, C.B. & Suetens, S. & Tyran, J.R., 2011. "Predicting Lotto Numbers," Discussion Paper 2011-033, Tilburg University, Center for Economic Research.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  5. Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-73, March.
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Cited by:
  1. Leuermann, Andrea & Roth, Benjamin, 2012. "Does good advice come cheap? - On the assessment of risk preferences in the lab and the field," Working Papers 0534, University of Heidelberg, Department of Economics.
  2. Andrea Leuermann & Benjamin Roth, 2012. "Does Good Advice Come Cheap?: On the Assessment of Risk Preferences in the Lab and in the Field," SOEPpapers on Multidisciplinary Panel Data Research 475, DIW Berlin, The German Socio-Economic Panel (SOEP).

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