Identifying Bias Through Post-Report Interactions When Advisors Drink Their Own Kool-Aid

Abstract

Financial advisors frequently have an interest in the investments their clients make, forcing clients to distinguish the part of their advisor’s recommendation that reflects unbiased beliefs from the parts that reflect self-interested bias. This task is complicated by the tendency of advisors to ‘drink their own Kool-Aid’, making some of their bias a sincerely held belief. In our first experiment, we show that clients make such distinctions more accurately when they meet the advisor face-to-face to discuss the recommendation, compared to when they receive only a written recommendation. In our second experiment, we show that clients make such distinctions more accurately when advisors are asked to provide factual information about their own actions and clients are encouraged to focus on factual information. Our results underscore the importance of post-report interactions and the value of training to request, discern, and focus on advisors’ factual claims.

Keywords: Conflicts of interest, deception, deception detection, persuasion, sincerity, cheap-talk, reporting, motivated reasoning, self-deception, narrative reporting

JEL Classification: G14, G31, D82, D83, D80, C72, M41, M30, M40