Recognition of Abilities in Random Noise: People Are Willing to Pay for the Illusion of Success

The aim of the study was to find out if people erroneously identify the ability to succeed in an explicitly random process. We also tested whether this tendency to the so-called illusion of success is more intense in a loss frame. In an experimental game, participants (N=186) were rewarded with a substantial cash prize for the future success of a player in predicting a fair coin throw. Participants took part in an auction where they could bid for pairing with a player who had been more successful in the past. Since the success of a player was an explicitly random variable, the degree of willingness to bid for his past success shows the succumbing to the illusion of success. We have found that past random success of a player significantly affects the willingness of participants to pay in the auction. The illusion of success is not influenced by loss aversion or risk preferences of the participants.

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Author Information
Petr Houdek, University of Economics in Prague, Czech Republic
Marek Vranka, University of Economics in Prague, Czech Republic
Ondřej Machek, University of Economics in Prague, Czech Republic
Luboš Smrčka, University of Economics in Prague, Czech Republic

Paper Information Conference: ACP2018
Stream: Industrial Organization and Organization Theory

Added on Monday, April 9th, 2018
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Posted by amp21