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


  • Powdthavee, Nattavudh

    () (University of Warwick)

  • Riyanto, Yohanes E.

    () (Nanyang Technological University, Singapore)


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.

Suggested Citation

  • Powdthavee, Nattavudh & Riyanto, Yohanes E., 2012. "Why Do People Pay for Useless Advice? Implications of Gambler's and Hot-Hand Fallacies in False-Expert Setting," IZA Discussion Papers 6557, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6557

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    References listed on IDEAS

    1. Sigrid Suetens & Claus B. Galbo-Jørgensen & Jean-Robert Tyran, 2016. "Predicting Lotto Numbers: A Natural Experiment On The Gambler'S Fallacy And The Hot-Hand Fallacy," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 584-607, June.
    2. 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.
    3. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    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 458-473, March.
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    Blog mentions

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    1. La Fuerte Demanda por Charlatanes
      by Alejandro Villagomez in Tintero Económico Diario on 2012-05-28 05:14:00


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    Cited by:

    1. Victor Haghani & Richard Dewey, 2017. "Rational Decision-Making Under Uncertainty: Observed Betting Patterns on a Biased Coin," Papers 1701.01427,

    More about this item


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

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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