Persistent Bias in Advice-Giving

University of Zurich, Department of Economics, Working Paper No. 228, Revised version

49 Pages Posted: 2 Jun 2016 Last revised: 6 Nov 2017

See all articles by Zhuoqiong (Charlie) Chen

Zhuoqiong (Charlie) Chen

Harbin Institute of Technology - Shenzhen Graduate School

Tobias Gesche

ETH Zurich, Center for Law & Economics

Date Written: October 6, 2017

Abstract

We show that a one-off incentive to bias advice has persistent effects. In an experiment, advisers were paid a bonus to recommend a lottery which only risk-seeking individuals should choose to a less informed client. Afterwards, they had to choose for themselves and make a second recommendation to another client, without any bonus. These advisers choose the risky lottery and recommend it a second time up to six times more often than advisers in a control group who were never offered a bonus. These results are consistent with a theory we present which is based on advisers' image concerns of appearing incorruptible.

Keywords: Advice-giving, conflict of interest, self-signaling, self-deception

JEL Classification: C91, D03, D83, G11

Suggested Citation

Chen, Zhuoqiong and Gesche, Tobias, Persistent Bias in Advice-Giving (October 6, 2017). University of Zurich, Department of Economics, Working Paper No. 228, Revised version. Available at SSRN: https://ssrn.com/abstract=2787825 or http://dx.doi.org/10.2139/ssrn.2787825

Zhuoqiong Chen (Contact Author)

Harbin Institute of Technology - Shenzhen Graduate School ( email )

Room 301A, Building B, HITSZ campus
University Town of Shenzhen
Shenzhen, Guangdong 518055
China

Tobias Gesche

ETH Zurich, Center for Law & Economics ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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