Would you pay for transparently useless advice? A test of boundaries of beliefs in the folly of predictions
Yohanes, Eko Riyanto
Date of Issue2015
School of Humanities and Social Sciences
Standard economic models assume that the demand for expert predictions arises only under the conditions in which individuals are uncertain about the underlying process generating the data and there is a strong belief that past performances predict future performances. We set up the strongest possible test of these assumptions. In contrast to the theoretical suggestions made in the literature, people are willing to pay for predictions of truly random outcomes after witnessing only a short streak of accurate predictions live in the lab. We discuss potential explanations and implications of such irrational learning in the contexts of economics and finance.
DRNTU::Social sciences::Economic theory
Review of economics and statistics
© 2015 President and Fellows of Harvard College and the massachusetts institute of Technology. This paper was published in Review of Economics and Statistics and is made available as an electronic reprint (preprint) with permission of President and Fellows of Harvard College and the massachusetts institute of Technology. The paper can be found at the following official DOI: [http://www.mitpressjournals.org/doi/10.1162/REST_a_00453#.VVBTkY6qpBc]. One print or electronic copy may be made for personal use only. Systematic or multiple reproduction, distribution to multiple locations via electronic or other means, duplication of any material in this paper for a fee or for commercial purposes, or modification of the content of the paper is prohibited and is subject to penalties under law.