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CEP discussion paper
Why Do People Pay for Useless Advice?
Nattavudh Powdthavee and Yohanes E. Riyanto
June 2012
Paper No' CEPDP1153:
Full Paper (pdf)

JEL Classification: C91; D03

Tags: behavioral finance; hot-hand; random streak; expertise; information

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.