There are many situations in life in which you have to follow other people’s advice. Doctors recommend medications to treat problems. Mechanics suggest ways to maintain your car more effectively. Financial advisers indicate the investments they think you should consider.
Because companies know that advisers play a bit role in the choices people make, those companies will often create incentives for advisers to make specific recommendations. Drug companies wine-and-dine doctors in the hope that the doctors will recommend their medications to patients. Mechanics often have higher profit margins on some kinds of maintenance, which gives them a reason to suggest those procedures.
These incentives create a conflict-of-interest. When you get advice from someone, you hope that you are getting the advice that is best for you. When advisers have an incentive to recommend a particular option, then they may suggest that option to you even when it is not ideal.
To help protect you, there are often regulations that require disclosures of conflicts-of-interest. In those cases, an adviser has to tell you in advance that they have reasons to recommend particular options. The idea is that if you know that an adviser may be biased, you can use that information to help you make a choice.
Do these disclosures work?
This question was addressed in a paper in the February, 2013 paper in the Journal of Personality and Social Psychology by Sunita Sah, George Loewenstein, and Daylian Cain. Their studies suggest that these disclosures may actually increase the likelihood that people make choices that are in the advisers best interest rather than their own.
In their studies, participants were people who had never met. These participants were recruited in public places, so they were not generally college students. One participant played the role of the adviser, while the other played the role of the chooser.
The options in these studies were opportunities to win a prize. In a given opportunity, there were six possible prizes. The prize a participant would actually get depended on the role of a die. Choosers were faced with two sets of prizes, and they had to select which one they wanted. Then, the experimenter would roll a die, and they would get the prize that matched the number for that set. The two sets were designed so that one was better than the other. For example the better set might have the chance for prizes like a $50 gift card to Amazon, a candy bar, or a can of Coke. The worse set might have the chance for prizes like a $20 gift card, a can of generic soda, or a candy bar. When people were given a free choice between the two sets, they almost always chose the better one.
The second participant played the role of an adviser. The adviser always saw the options first and made a recommendation for what the chooser should pick. In some cases, there was no conflict-of-interest. Both the chooser and the adviser would get prizes after the study regardless of what the adviser recommended and what the chooser selected. In those cases, the adviser generally recommended the better option, and the chooser generally picked it.
In some cases, though, the experimenters created a conflict. In these cases, the adviser would get a chance to win a prize only if the chooser picked the worse set of prizes. So, there was incentive for the adviser to recommend the worse option.
If the chooser was not told about the conflict, then they took the advisers recommendation only about 30% of the time. Ratings they gave after the study suggested that they felt the adviser gave a bad recommendation.
In the disclosure condition, though, the advisers had to write down that they made this recommendation because they would only receive a prize if the chooser selected the worse option. In the conditions in which the conflict was disclosed, choosers felt that the adviser was not trustworthy, but they took the adviser’s recommendation about 75% of the time.
What is going on here?
Choosers in these studies seem to have been motivated to make a selection that helped both themsel