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Do we listen to advice just because we paid for it? The impact of advice cost on its use

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  • Gino, Francesca
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    Abstract

    When facing a decision, people often rely on advice received from others. Previous studies have shown that people tend to discount others' opinions. Yet, such discounting varies according to several factors. This paper isolates one of these factors: the cost of advice. Specifically, three experiments investigate whether the cost of advice, independent of its quality, affects how people use advice. The studies use the Judge-Advisor System (JAS) to investigate whether people value advice from others more when it costs money than when it is free, and examine the psychological processes that could account for this effect. The results show that people use paid advice significantly more than free advice and suggest that this effect is due to the same forces that have been documented in the literature to explain the sunk costs fallacy. Implications for circumstances under which people value others' opinions are discussed.

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    File URL: http://www.sciencedirect.com/science/article/B6WP2-4SC5PM6-1/2/af2ce9649e3f15b50dc0b7ceab6b7258
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    Bibliographic Info

    Article provided by Elsevier in its journal Organizational Behavior and Human Decision Processes.

    Volume (Year): 107 (2008)
    Issue (Month): 2 (November)
    Pages: 234-245

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    Handle: RePEc:eee:jobhdp:v:107:y:2008:i:2:p:234-245

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    Web page: http://www.elsevier.com/locate/obhdp

    Related research

    Keywords: Advice taking Judge-Advisor System Sunk costs Paid-advice effect Information use;

    References

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    1. Sniezek, Janet A. & Van Swol, Lyn M., 2001. "Trust, Confidence, and Expertise in a Judge-Advisor System," Organizational Behavior and Human Decision Processes, Elsevier, vol. 84(2), pages 288-307, March.
    2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    3. Ordonez, Lisa D., 1998. "The Effect of Correlation between Price and Quality on Consumer Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 75(3), pages 258-273, September.
    4. Yaniv, Ilan & Kleinberger, Eli, 2000. "Advice Taking in Decision Making: Egocentric Discounting and Reputation Formation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 83(2), pages 260-281, November.
    5. Patt, Anthony G. & Bowles, Hannah Riley & Cash, David W., 2006. "Mechanisms for Enhancing the Credibility of an Adviser: Prepayment and Aligned Incentives," Working Paper Series rwp06-010, Harvard University, John F. Kennedy School of Government.
    6. Richard P. Larrick & Jack B. Soll, 2006. "Intuitions About Combining Opinions: Misappreciation of the Averaging Principle," Management Science, INFORMS, vol. 52(1), pages 111-127, January.
    7. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
    8. Gourville, John T & Soman, Dilip, 1998. " Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption," Journal of Consumer Research, University of Chicago Press, vol. 25(2), pages 160-74, September.
    9. Richard P. Larrick & Jack B. Soll, 2006. "Erratum--Intuitions About Combining Opinions: Misappreciation of the Averaging Principle," Management Science, INFORMS, vol. 52(2), pages 309-310, February.
    10. Harvey, Nigel & Fischer, Ilan, 1997. "Taking Advice: Accepting Help, Improving Judgment, and Sharing Responsibility," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(2), pages 117-133, May.
    11. Yaniv, Ilan, 2004. "Receiving other people's advice: Influence and benefit," Organizational Behavior and Human Decision Processes, Elsevier, vol. 93(1), pages 1-13, January.
    12. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    13. Sniezek, Janet A. & Buckley, Timothy, 1995. "Cueing and Cognitive Conflict in Judge-Advisor Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(2), pages 159-174, May.
    14. Garland, Howard & Newport, Stephanie, 1991. "Effects of absolute and relative sunk costs on the decision to persist with a course of action," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 55-69, February.
    15. Heath, Chip, 1995. "Escalation and De-escalation of Commitment in Response to Sunk Costs: The Role of Budgeting in Mental Accounting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(1), pages 38-54, April.
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    Cited by:
    1. Jordi Brandts & Valeska Groenert & Christina Rott, 2012. "The Impact of Advice on Women's and Men's Selection into Competition," Working Papers 663, Barcelona Graduate School of Economics.
    2. Erik O. Kimbrough & Jared Rubin & Roman M. Sheremeta & Timothy Shields, 2013. "Commitment Problems in Conflict Resolution," Working Papers 13-11, Chapman University, Economic Science Institute.
    3. See, Kelly E. & Morrison, Elizabeth W. & Rothman, Naomi B. & Soll, Jack B., 2011. "The detrimental effects of power on confidence, advice taking, and accuracy," Organizational Behavior and Human Decision Processes, Elsevier, vol. 116(2), pages 272-285.

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