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Why Do People Pay for Useless Advice? Implications of Gambler's and Hot-Hand Fallacies in False-Expert Setting

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Author Info

  • Powdthavee, Nattavudh

    () (London School of Economics)

  • Riyanto, Yohanes E.

    () (Nanyang Technological University, Singapore)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6557.

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Length: 26 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6557

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Keywords: gambler's fallacy; hot-hand; random streak; expertise; information;

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  1. Claus Bjørn Jørgensen & Sigrid Suetens & Jean-Robert Tyran, 2011. "Predicting Lotto Numbers," Discussion Papers 11-10, University of Copenhagen. Department of Economics.
  2. 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.
  3. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. La Fuerte Demanda por Charlatanes
    by Alejandro Villagomez in Tintero Económico Diario on 2012-05-28 00:14:00

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