Paying for "Transparently Useless Advice"

According to a new study, people do. Even when they know that the advice is useless.

Researchers Nattavudh Powdthavee and Yohanes E. Riyanto investigated why people pay for advice about the future, particularly since the future is generally unpredictable (see our  “Folly of Prediction” podcast on this topic). Their starting point:

Why do humans pay for advice about the future when most future events are predominantly random? What explains, e.g., the significant money spent in the finance industry on people who appear to be commenting about random walks, payments for services by witchdoctors, or some other false-expert setting?

The researchers ran a series of experiments in Thailand and Singapore. Participants were asked to bet on a series of five coin flips; prior to betting, they were offered a chance to pay for a prediction of the outcome of each toss. The researchers noted that the predictions were random, and the coin toss fair. Hence, the prediction was essentially useless. However, participants were happy to pay for the predictions — particularly if the predictions in the earlier rounds had been correct. The authors conclude:

Did people who randomly received correct predictions perceive in a hot hand of the nonexistent expert and in turn pay for such useless information later? If so, how long was it before they started buying? The answers are: yes, and not long. 

We conducted possibly one of the strongest laboratory tests on people’s pre-existing beliefs to show that an average person is often happy to pay for what could only be described as transparently useless advice.

 


Cara

Maybe people aren't really paying for the advice; they're just paying for someone else to make the decision. Then, if the outcome is bad, they have someone to blame besides themselves.

tmeier

The only thing I find surprising about this is that anyone is surprised by it. People mostly go through the day functioning at the level of a reasonably smart dog. Our higher cognitive faculties only kick in when they are confronted with something puzzling. The main difference between what we call sharp, rational people and others is the threshold at which the intellect activates.

Dogs are very suggestible.

Colin Wright

I think one can go further than tmeier. I've often noticed that while we can see the mistakes others are making, we seem to be quite helpless to conduct our own lives in a rational manner -- and intelligence is almost irrelevant.

It's often occurred to me that we'd all do better if we all ran someone else's life while they ran ours. 'You should quit this job.' 'Yes, you should marry this girl.' 'START GOING TO BED EARLIER.' Average success and happiness should about double.

tmeier

Yes, that's the effect of having a disinterested party. If you ask a benevolently disposed stranger whether you should have that second helping of pie he'll likely say no but then he's not the one who's going to be tasting that luscious flaky crust and sweet smooth filling, so it's easy for him.

I think the dog analogy is a useful one, think of your body and it's inclinations as a dog you're in charge of and have to train. You have to let it do it's thing and have some fun but you don't allow it to do whatever it wants or you get a bad dog.

m.m

"What explains, e.g., the significant money spent in the finance industry on people who appear to be commenting about random walks"

That's called "a racket."

The finance industry has, very wisely, made no effort to distinguish between future events that may be forecastable (i.e., the effect weather in the current season might have on the yield/price of a crop commodity 6 months from now) and those that are not (almost everything else). By not making such a distinction, consultants/analysts/etc. are able to garner fat, fat incomes, even (or especially) when their advice is wholly useless.

What possible incentive would the industry have to do away with such nonsense?

Eric M. Jones.

Students of predictions are encouraged to read "The Book of Predictions" 1981, editors, David Wallechinsky, Amy Wallace and Irving Wallace. Fascinating reading. It shows how wildly wrong almost everybody was, about the future (mostly now our past).

But ONE guy, Andrew M. Greeley (to be fair, in 1980) predicted that before 1990: "The present Communist government in the Soviet Union will be overthrown either by a violent internal revolution or more likely by a 'social democratic' faction within the party. Some of the constituent republics (the Ukraine, for example), will obtain authentic separate status. The Soviet colonies in Eastern Europe will then go the same route."

Thank the gods for Amazon's used books!

AaronS

As others have noted, people aren't really paying for advice. They are paying for a feeling of control. Same with lottery tickets: People aren't really paying for the lottery ticket, but for the hope and thrill of what MIGHT happen.

When we have no idea what to do, we tend to pretty much listen to anyone. I noted this many years ago when, as a young construction worker, I would find my boss speaking self-assuredly of something about which he had no clue--or no way to fulfill.

"That's right, we'll be here tomorrow around 2:00 p.m. and get this fixed for you." I knew he was never on time, but he SOUNDED sure. And that was what won the job for him I think it was even mentioned here, sometime back, that the person who says "yes, I can do it," wins the promotions, even if he/she fails. Why? He/she SOUNDS like they are a go-getter. They are being rewarded for...nothing; while the rest of us are NOT being rewarded for our honestly/prudence in declining to make a false claim.

In a nutshell, when a person doesn't know the answer, we turn to fortune-tellers, guessers, "prophets" (I do believe there are real ones), etc. When I'm lost and don't know whether to go left or right, I have no problem with doing whatever my 4-year-old son says. After all, as far as I'm concerned, he may have a connection I don't have. Besides, I don't have any better ideas.

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Howard Brazee

People like having answers, the more solid the better - whether or not the answers have any resemblance to reality.

Science isn't very popular because it doesn't have absolute answers. But politicians who promise answers are popular. Clergy who ignore their scriptures but give you someone to blame (for a price) are popular.

Russell Harris

It seems that the person proclaiming predictions with strident, clearcut statements without qualification are most often wrong, yet most widely believed by the public. And those who try to speak with greatest accuracy, acknowledging the possible errors and inconsistencies, appear to be unreliable or at worst untruthful.

Whether this is due to media's appetite for a soundbite, or reduced logical literacy of the populace, or a need for assurance in an uncertain world ...

Jack

Isn't this how we elect our presidents?

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I wonder if the study adjusted for cultural beliefs. Singapore is an economic powerhouse with a highly educated populace but they are Chinese and belief in lucky practices remains strong. Some might have thought that the very act of paying for the advice might be a propitious precaution.

palocortado

Yes, it did. Most of the measures did not seem to be different across locations or genders.