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Why Do People Pay for Useless Advice?

  • Nattavudh Powdthavee
  • Yohanes E. Riyanto

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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File URL: http://cep.lse.ac.uk/pubs/download/dp1153.pdf
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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
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Matthew Rabin, 2001. "Inference by Believers in the Law of Small Numbers," Method and Hist of Econ Thought 0012002, EconWPA.
  2. Claus Bjørn Jørgensen & Sigrid Suetens & Jean-Robert Tyran, 2011. "Predicting Lotto Numbers," Discussion Papers 11-10, University of Copenhagen. Department of Economics.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. 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.
  5. 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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