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

Powdthavee, Nattavudh; Riyanto, Yohanes

Abstract

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

Nanyang Technological University (NTU) - Division of Economics

IZA Discussion Paper No. 6557

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.

Number of Pages in PDF File: 26

Keywords: gambler's fallacy, hot-hand, random streak, expertise, information

JEL Classification: C91, D03

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Date posted: May 26, 2012

Suggested Citation

Powdthavee, Nattavudh and Riyanto, Yohanes E., Why Do People Pay for Useless Advice? Implications of Gambler's and Hot-Hand Fallacies in False-Expert Setting. IZA Discussion Paper No. 6557. Available at SSRN: http://ssrn.com/abstract=2066980

Contact Information

Nattavudh Powdthavee (Contact Author) University of Warwick ( email ) Gibbet Hill Rd. Coventry, West Midlands CV4 8UW United Kingdom +44 (0)2476 528240 (Phone)
Yohanes E. Riyanto Nanyang Technological University (NTU) - Division of Economics ( email ) HSS 04-53, 14 Nanyang Drive Singapore, 639798 Singapore

Abstract

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

Nattavudh Powdthavee

Yohanes E. Riyanto

Date posted: May 26, 2012

Suggested Citation

Contact Information

Nattavudh Powdthavee (Contact Author)

Yohanes E. Riyanto