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The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest

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  • George Loewenstein
  • Daylian M. Cain
  • Sunita Sah

Abstract

We review evidence from our published and ongoing research that disclosing conflicts of interest has unintended consequences, helping conflicted advisors and harming their advisees: With disclosure, advisors feel comfortable giving more biased advice, but advisees do not properly adjust for this and generally fail to sufficiently discount biased advice. Disclosure also increases pressure on advisees to comply with advice; following disclosure, advisees feel more uncomfortable in turning down advice (e.g., it signals distrust of the advisor's motives). Finally, we examine the effectiveness of policy interventions aimed at reducing these unintended consequences and discuss how to realize potential benefits of disclosure.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.423
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 3 (May)
Pages: 423-28

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:423-28

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  1. Koch, Christopher & Schmidt, Carsten, 2006. "Disclosing Conflict of Interest - Does Experience and Reputation Matter?," Sonderforschungsbereich 504 Publications 06-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Daylian M. Cain & George Loewenstein & Don A. Moore, 2011. "When Sunlight Fails to Disinfect: Understanding the Perverse Effects of Disclosing Conflicts of Interest," Journal of Consumer Research, University of Chicago Press, vol. 37(5), pages 836 - 857.
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Cited by:
  1. Daniel Houser & David M. Levy & Kail Padgitt & Sandra J. Peart & Erte Xiao, 2014. "Raising the Price of Talk: An Experimental Analysis of Transparent Leadership," Working Papers 1048, George Mason University, Interdisciplinary Center for Economic Science.
  2. Mario García Molina & Liliana Chicaíza Becerra, 2013. "Las decisiones de los economistas: Coase y los sesgos cognitivos en el trabajo teórico," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 15(29), pages 21-39, July-Dece.

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