The lure of illusory luck: How much are people willing to pay for random shocks

Jia Yuan, Guang-Zhen Sun and Ricardo Siu

Journal of Economic Behavior & Organization, 2014, vol. 106, issue C, 269-280

Abstract: We investigate whether people are influenced to make investment decisions based on random shock signals and to what extent they do so by exploiting a unique data set from a popular Chinese lottery game with over one million observations. We first present evidence that people, as individual investors in the field, not only systematically commit the hot-hand fallacy in chasing the winners who happen to pick the lucky numbers in the latest round of the lottery game, but are also willing to bear a cost in doing so although winning the lottery is merely a random shock. We then propose a simple model to account for the observed market behaviors. We further estimate the lottery players’ willingness to pay for the random shock signals, and find that the market value of such illusion is significantly high.

Keywords: Hothand fallacy; Market value of random shocks; Alphabetic preference; Online peer-to-peer gambling; Mutual funds (search for similar items in EconPapers)
JEL-codes: D81 L86 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:106:y:2014:i:c:p:269-280

DOI: 10.1016/j.jebo.2014.06.003

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