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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.

Suggested Citation

  • George Loewenstein & Daylian M. Cain & Sunita Sah, 2011. "The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest," American Economic Review, American Economic Association, vol. 101(3), pages 423-428, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:423-28
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    References listed on IDEAS

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    1. 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, Oxford University Press, vol. 37(5), pages 836-857.
    2. 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.
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    Cited by:

    1. Pan, Xiaofei & Xiao, Erte, 2016. "It’s not just the thought that counts: An experimental study on the hidden cost of giving," Journal of Public Economics, Elsevier, vol. 138(C), pages 22-31.
    2. Chen, D.L. & Levonyan, V. & Reinhart, S.E. & Taksler, G., 2014. "Do Payment Disclosure Laws Affect Industry-Physician Relationships?," Health, Econometrics and Data Group (HEDG) Working Papers 14/24, HEDG, c/o Department of Economics, University of York.
    3. repec:eee:jeborg:v:161:y:2019:i:c:p:323-342 is not listed on IDEAS
    4. repec:eee:pubeco:v:161:y:2018:i:c:p:44-55 is not listed on IDEAS
    5. Bazerman, Max H. & Sezer, Ovul, 2016. "Bounded awareness: Implications for ethical decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 136(C), pages 95-105.
    6. Kartal, Melis & Tremewan, James, 2018. "An offer you can refuse: The effect of transparency with endogenous conflict of interest," Journal of Public Economics, Elsevier, vol. 161(C), pages 44-55.
    7. Jeremy Burke & Angela A. Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.
    8. Yip, Jeremy A. & Schweitzer, Maurice E., 2016. "Mad and misleading: Incidental anger promotes deception," Organizational Behavior and Human Decision Processes, Elsevier, vol. 137(C), pages 207-217.
    9. Houser, Daniel & Levy, David M. & Padgitt, Kail & Peart, Sandra J. & Xiao, Erte, 2014. "Raising the price of talk: An experimental analysis of transparent leadership," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 208-218.
    10. repec:eee:jobhdp:v:147:y:2018:i:c:p:76-93 is not listed on IDEAS
    11. Jeremy B. Griffin, 2014. "The Effects of Uncertainty and Disclosure on Auditors' Fair Value Materiality Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 52(5), pages 1165-1193, December.
    12. repec:eee:jeborg:v:142:y:2017:i:c:p:468-481 is not listed on IDEAS
    13. Julie S. Downs & Jessica Wisdom & George Loewenstein, 2015. "Helping Consumers Use Nutrition Information: Effects of Format and Presentation," American Journal of Health Economics, MIT Press, vol. 1(3), pages 326-344, Summer.
    14. 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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