Why Do People Pay for Useless Advice? Implications of Gambler's and Hot-Hand Fallacies in False-Expert Setting
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.
|Date of creation:||May 2012|
|Date of revision:|
|Publication status:||published as 'Would You Pay for Transparently Useless Advice? A Test of Boundaries of Beliefs in the Folly of Predictions' in: Review of Economics and Statistics, 2014, [Online First]|
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- Matthew Rabin, 2002. "Inference by Believers in the Law of Small Numbers," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 775-816.
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
- Jorgensen, C.B. & Suetens, S. & Tyran, J.R., 2011.
"Predicting Lotto Numbers,"
2011-033, Tilburg University, Center for Economic Research.
- Claus Bjørn Jørgensen & Sigrid Suetens & Jean-Robert Tyran, 2011. "Predicting Lotto Numbers," Discussion Papers 11-10, University of Copenhagen. Department of Economics.
- Jørgensen, Claus Bjørn & Suetens, Sigrid & Tyran, Jean-Robert, 2011. "Predicting Lotto Numbers," CEPR Discussion Papers 8314, C.E.P.R. Discussion Papers.
- 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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