The Burden of Disclosure: Increased Compliance with Distrusted Advice

Abstract:     
Professionals are often influenced by conflicts of interest when they have a personal, often material, interest in giving biased advice. Although disclosure (informing advisees about the conflict of interest) is often proposed as a solution to problems caused by such conflicts, prior research has found both positive and negative effects of disclosure. We present four experiments that reveal a previously unrecognized perverse effect of disclosure: While disclosure can decrease advisees’ trust in the advice, it simultaneously increases pressure to comply with that same advice. We demonstrate that the increased pressure results from advice recipients feeling obliged to help satisfy their advisors’ personal interests when those interests have been disclosed. Hence, disclosure can burden those it is ostensibly intended to protect. We show that the increased pressure to comply is reduced if (1) the disclosure is provided by an external source rather than from the advisor, (2) the disclosure is not common knowledge between the advisor and advisee, (3) a cooling-off period is introduced, or, (4) the advisee can make the decision in private.

Number of Pages in PDF File: 46

Keywords: conflicts of interest, disclosure, advice, ethics, regulation, reluctant altruism

working papers series