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Do voluntary payments to advisors improve the quality of financial advice? An experimental sender-receiver game

Author Info

Listed author(s):
  • Vera Angelova
  • Tobias Regner

Abstract

The market for retail nancial 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 nancial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the con ict 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. Across treatments, there is signi cantly more truthful advice when both clients and advisors have opportunities to reciprocate. Within treatments, the frequency of truthful advice is signi cantly higher when the voluntary payment is large.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2016-030.

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Length: 48 pages
Date of creation: Aug 2016
Handle: RePEc:hum:wpaper:sfb649dp2016-030
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Find related papers by JEL classification:
  • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
  • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • G20 - Financial Economics - - Financial Institutions and Services - - - General
  • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
  • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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Cited by:

  1. 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.
  2. Angelova, Vera & Regner, Tobias, 2013. "Do voluntary payments to advisors improve the quality of financial advice? An experimental deception game," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 205-218.

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