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When Sunlight Fails to Disinfect: Understanding the Perverse Effects of Disclosing Conflicts of Interest

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  • Daylian M. Cain
  • George Loewenstein
  • Don A. Moore

Abstract

Disclosure is often proposed as a remedy for conflicts of interest, but it can backfire, hurting those whom it is intended to protect. Building on our prior research, we introduce a conceptual model of disclosure's effects on advisors and advice recipients that helps to explain when and why it backfires. Studies 1 and 2 examine psychological mechanisms (strategic exaggeration, moral licensing) by which disclosure can lead advisors to give more-biased advice. Study 3 shows that disclosure backfires when advice recipients who receive disclosure fail to sufficiently discount and thus fail to mitigate the adverse effects of disclosure on advisor bias. Study 4 identifies one remedy for inadequate discounting of biased advice: explicitly and simultaneously contrasting biased advice with unbiased advice.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:jconrs:doi:10.1086/656252
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    Citations

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    Cited by:

    1. repec:eee:jeborg:v:137:y:2017:i:c:p:445-456 is not listed on IDEAS
    2. Sascha Behnk & Iván Barreda-Tarrazona & Aurora García-Gallego, 2017. "An experimental test of reporting systems for deception," Working Papers 2017/11, Economics Department, Universitat Jaume I, Castellón (Spain).
    3. repec:eee:pubeco:v:161:y:2018:i:c:p:44-55 is not listed on IDEAS
    4. 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.
    5. Paul Chen & Martin Richardson, 2016. "Conflict of Interest, Disclosure, and Vertical Relationships: An Experimental Analysis," ANU Working Papers in Economics and Econometrics 2016-647, Australian National University, College of Business and Economics, School of Economics.
    6. Eyal Carmel & Dana Carmel & David Leiser & Avia Spivak, 2015. "Facing a Biased Adviser While Choosing a Retirement Plan: The Impact of Financial Literacy and Fair Disclosure," Journal of Consumer Affairs, Wiley Blackwell, vol. 49(3), pages 576-595, November.
    7. Roman M. Sheremeta, 2016. "The pros and cons of workplace tournaments," IZA World of Labor, Institute for the Study of Labor (IZA), pages 302-302, October.
    8. Barasch, Alixandra & Levine, Emma E. & Schweitzer, Maurice E., 2016. "Bliss is ignorance: How the magnitude of expressed happiness influences perceived naiveté and interpersonal exploitation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 137(C), pages 184-206.
    9. Sheremeta, Roman M. & Shields, Timothy W., 2017. "Deception and reception: The behavior of information providers and users," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 445-456.
    10. Beyer, Max & de Meza, David & Reyniers, Diane, 2013. "Do financial advisor commissions distort client choice?," Economics Letters, Elsevier, vol. 119(2), pages 117-119.
    11. Tobias Gesche, 2016. "De-biasing strategic communication," ECON - Working Papers 216, Department of Economics - University of Zurich, revised Jul 2017.
    12. Sah, Sunita & Loewenstein, George, 2015. "Conflicted advice and second opinions: Benefits, but unintended consequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 130(C), pages 89-107.
    13. 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.
    14. Mariya Teteryatnikova & James Tremewan, 2016. "An offer you can refuse: the effects of transparency with endogenous conflict of interest," Vienna Economics Papers 1602, University of Vienna, Department of Economics.
    15. repec:eee:aosoci:v:66:y:2018:i:c:p:1-13 is not listed on IDEAS
    16. repec:spr:manrev:v:67:y:2017:i:4:d:10.1007_s11301-017-0128-0 is not listed on IDEAS
    17. Christoph Buehren & Marco Plessner, 2014. "Rating Agencies: An Experimental Analysis of their Remuneration Model," MAGKS Papers on Economics 201454, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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