Why Do People Pay for Useless Advice? Implications of Gambler's and Hot-Hand Fallacies in False-Expert Setting
University of Warwick
Yohanes E. Riyanto
Nanyang Technological University (NTU) - Division of Economics
IZA Discussion Paper No. 6557
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
Date posted: May 26, 2012
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