So I've tested it out and the "Shooting Star" Gift upgrade, which increases your Karma income by 1% of your total favors each level, seems to work, with or without the Auto Gain Favor.
It's not about the time you've gained Favor (going for the 1st layer presting), but rather the amount of Total favors you have (check the stats menu to see how many you have at the moment).
Maybe I should explain it better.
You do a Blessing Prestige and then you buy the Auto Gain Favor and return to the first page.
Doing this prestige has reset your Total Favors.
You now play the game with Auto Favors on and you can't do any more Favor prestiging, only gifts and blessings, but what is the point in doing gifts and blessings prestiges if you haven't been able to accumulate a considerable amount from stockpiling favours to be multiplied by your Shooting Star bonus?
This feels like it makes no sense. But it does. I think. I hope.
Like I said: Maybe I should explain it better.
Maybe I should...
Yeah, if you're going for that approach, it surely makes no sense.
It is possible to still go for a Favor prestige, but you need to turn off the Auto gain Favor option for that (Settings -> Automation Menu).
Still, since you gain nothing from doing a Favor prestige (because you gain Favors automatically now), you can concentrate on when to go for a Gift or Blessing Prestige.
I hope this makes sense :D
