IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Do voluntary payments to advisors improve the quality of financial advice? An experimental deception game

  • Angelova, Vera
  • Regner, Tobias

The market for retail financial products (e.g., investment funds or insurances) is marred by information asymmetries. Clients are not well informed about the quality of these products. They have to rely on the recommendations of advisors. Incentives of advisors and clients may not be aligned, when fees are used by financial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the conflict of interest and increase truth telling of advisors. We compare a voluntary payment upfront, an obligatory payment upfront, a voluntary bonus afterwards, and a three-stage design with a voluntary payment upfront and a bonus after. Advisors are most truthful, when mutual opportunities to reciprocate exist, and when the voluntary payment is largest. Our analysis identifies the third stage bonus payment as the key feature for success as it allows for an interplay of reciprocal behavior between clients and advisors.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S016726811300067X
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 93 (2013)
Issue (Month): C ()
Pages: 205-218

as
in new window

Handle: RePEc:eee:jeborg:v:93:y:2013:i:c:p:205-218
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Battigalli, Pierpaolo & Charness, Gary & Dufwenberg, Martin, 2013. "Deception: The role of guilt," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 227-232.
  2. Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, 09.
  3. John A. List, 2005. "The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions," NBER Working Papers 11616, National Bureau of Economic Research, Inc.
  4. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  5. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  6. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
  7. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  8. Miettinen, Topi, 2008. "Contracts and Promises - An Approach to Pre-play Agreements," SSE/EFI Working Paper Series in Economics and Finance 707, Stockholm School of Economics.
  9. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
  10. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  11. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
  12. Matthias Sutter, 2007. "Deception through telling the truth?! Experimental evidence from individuals and teams," Working Papers 2007-26, Faculty of Economics and Statistics, University of Innsbruck.
  13. Danilov, Anastasia & Biemann, Torsten & Kring, Thorn & Sliwka, Dirk, 2013. "The dark side of team incentives: Experimental evidence on advice quality from financial service professionals," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 266-272.
  14. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2007. "Fairness and contract design," Munich Reprints in Economics 20618, University of Munich, Department of Economics.
  15. Michel Marechal & Puppe Clemens & Sebastian Kube, 2006. "Putting reciprocity to work - positive versus negative responses in the field," Natural Field Experiments 00291, The Field Experiments Website.
  16. Tobias Regner, 2009. "Social Preferences? Google Answers!," Jena Economic Research Papers 2009-035, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  17. Florian Artinger & Filippos Exadaktylos & Hannes Koppel & Lauri Sääksvuori, 2010. "Applying Quadratic Scoring Rule transparently in multiple choice settings: A note," ThE Papers 10/01, Department of Economic Theory and Economic History of the University of Granada..
  18. Sanjiv Erat & Uri Gneezy, 2012. "White Lies," Management Science, INFORMS, vol. 58(4), pages 723-733, April.
  19. Heike Hennig-Schmidt & Bettina Rockenbach & Abdolkarim Sadrieh, 2010. "In Search Of Workers' Real Effort Reciprocity-A Field and a Laboratory Experiment," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 817-837, 06.
  20. Peeters, Ronald & Vorsatz, Marc & Walzl, Markus, 2008. "Rewards in an experimental sender-receiver game," Economics Letters, Elsevier, vol. 101(2), pages 148-150, November.
  21. Santiago Sanchez-Pages & Marc Vorsatz, 2004. "An Experimental Study of Truth-Telling in a Sender-Receiver Game," ESE Discussion Papers 128, Edinburgh School of Economics, University of Edinburgh.
  22. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
  23. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  24. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-55, April.
  25. Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, vol. 56(1), pages 7-36, July.
  26. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  27. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  28. Navin Kartik, 2008. "Strategic Communication with Lying Costs," 2008 Meeting Papers 350, Society for Economic Dynamics.
  29. Daylian M. Cain & George Loewenstein & Don A. Moore, 2005. "The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 1-25, 01.
  30. Vera Angelova & Tobias Regner, 2012. "Do voluntary payments to advisors improve the quality of financial advice? An experimental sender-receiver game," Jena Economic Research Papers 2012-011, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  31. Vera Popva, 2010. "What renders financial advisors less treacherous? - On commissions and reciprocity -," Jena Economic Research Papers 2010-036, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  32. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
  33. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
  34. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
  35. Sjaak Hurkens & Navin Kartik, 2009. "Would I lie to you? On social preferences and lying aversion," Experimental Economics, Springer, vol. 12(2), pages 180-192, June.
  36. Ying Chen & Navin Kartik & Joel Sobel, 2008. "Selecting Cheap-Talk Equilibria," Econometrica, Econometric Society, vol. 76(1), pages 117-136, 01.
  37. Santiago Sánchez-Pagés & Marc Vorsatz, 2009. "Enjoy the silence: an experiment on truth-telling," Experimental Economics, Springer, vol. 12(2), pages 220-241, June.
  38. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  39. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  40. Rode, Julian, 2010. "Truth and trust in communication: Experiments on the effect of a competitive context," Games and Economic Behavior, Elsevier, vol. 68(1), pages 325-338, January.
  41. Jordi Brandts & Gary Charness, 2011. "The strategy versus the direct-response method: a first survey of experimental comparisons," Experimental Economics, Springer, vol. 14(3), pages 375-398, September.
  42. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  43. Bellemare, Charles & Shearer, Bruce, 2009. "Gift giving and worker productivity: Evidence from a firm-level experiment," Games and Economic Behavior, Elsevier, vol. 67(1), pages 233-244, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:93:y:2013:i:c:p:205-218. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.