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When Transparency Fails: How Altruistic Framing Sustains Demand for Useless Advice Despite Complete Information

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  • Powdthavee, Nattavudh

    (Nanyang Technological University, Singapore)

  • Riyanto, Yohanes E.

    (Nanyang Technological University, Singapore)

  • Zhang, Xiaojie

    (Nanyang Technological University, Singapore)

Abstract

This study examines whether complete transparency about the randomness of prediction-generating processes mitigates the hot hand fallacy and the conditions under which it may fail. In a pre-registered laboratory experiment (N=750), we showed that transparency about the prediction-generating processes reduced individuals' belief in the hot hand of fair coin flip predictions. However, this effect significantly weakened when we shifted from paying to donating for predictions. Participants exposed to streaks of accurate predictions under altruistic framing were more inclined to donate despite knowing the randomness involved. We explore underlying mechanisms and discuss implications for decision-making in economics and finance.

Suggested Citation

  • Powdthavee, Nattavudh & Riyanto, Yohanes E. & Zhang, Xiaojie, 2024. "When Transparency Fails: How Altruistic Framing Sustains Demand for Useless Advice Despite Complete Information," IZA Discussion Papers 17484, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17484
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    More about this item

    Keywords

    gambler's fallacy; hot hand; full information; altruism; random streaks; karmic investment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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