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

26 Pages Posted: 26 May 2012  

Nattavudh Powdthavee

University of Warwick

Yohanes E. Riyanto

Nanyang Technological University (NTU) - Division of Economics

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

JEL Classification: C91, D03

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: https://ssrn.com/abstract=2066980

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

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