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

Nattavudh Powdthavee and Yohanes Riyanto

No 6557, IZA Discussion Papers from IZA Network @ LISER

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.

Keywords: information; expertise; gambler's fallacy; hot-hand; random streak (search for similar items in EconPapers)
JEL-codes: C91 D03 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-05
New Economics Papers: this item is included in nep-cbe and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - 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, 2015, 97 (2), 257 - 272

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