In a world with increasingly sceptical consumers, understanding how to build consumer trust becomes essential. Many studies have attempted to understand how professionals give advice when they have a personal interest in giving biased advice, and how it is interpreted and received by customers. It is common in certain professions, such as medicine or finance, for it to be a requirement for any such Conflicts of Interest (COIs) to be declared. Unfortunately prior work has shown that such disclosure doesn’t always have the desired effects. For example consumers often fail to sufficiently discount conflicted advice, and advisors can feel justified in offering more biased advice once a conflict has been declared .
A new set of experiments by Sunita Sah and George Loewenstein, published in Psychological Science, suggests that there may be hope for a positive effect of COI disclosure . Previous studies have focused on the effects when COIs are unavoidable, whereas the current study also included conditions where advisors could choose to avoid the Conflict of Interest.
The basic setup for the experiment involved participants acting either as advisees, who had to guess the number of filled dots on a grid but could only see a subset of the grid, or advisors who could see the whole grid and give the other participants advice to steer their estimates. In the first experiment, advisees were rewarded for accuracy in their estimate, whereas advisors were paid more if the estimate was higher than the true value, introducing a Conflict of Interest. In this scenario the classic findings were replicated with advisors who had to declare a Conflict of Interest giving higher (and more biased) recommendations.
In their second experiment, advisors could choose between a reward structure that would create a Conflict of Interest (they received a $10 reward for an outcome that differed to the outcome which saw their advisee receive their $5 reward) or one which did not (the outcome that was beneficial for the advisor and advisee was the same and each would receive $5). 63% of advisors chose the higher COI reward when the reward structure wasn’t going to be disclosed to advisees. However only 33% chose the conflict when they knew the structure would be disclosed.
In their final experiment, a voluntary disclosure condition was added, meaning some advisors could now not only choose to accept or reject the COI but also whether they would disclose the presence or absence of COIs to advisees. Voluntary disclosure seemed to lead advisors to avoid the COI and disclose their freedom from conflicts, i.e. that they had “nothing to declare”.
It seems then that whilst the disclosure of unavoidable Conflicts of Interest may not help consumers reach optimal decisions, it could act as an incentive to advisors to avoid COIs and declaring the absence of conflicts could even act as a signal of quality. These findings give hope that in the longer term COI disclosure could have positive benefits by encouraging low-quality providers to improve quality or exit the market.
Research Innovation Specialist