Advice vs. choice

by on April 30, 2017 at 12:05 pm in Economics, Education | Permalink

I do not consider this to be a confirmed result, still the basic mechanism is of interest, especially to analyses of complacency:

Despite the near universality of the maxim that one should treat others as one ought to be treated, even well-intended advisers often advise others to act differently than they choose for themselves. We review several psychological factors that contribute to biased advice. Absent pecuniary motives to the contrary, advice tends to be paternalistically biased in favor of caution. Policies that would intuitively promote quality advice — such as making advisers accountable, taking advice from advisers who value the relationship, or having advisers disclose potential conflicts of interest — can perversely lower the quality of advice.

That is from a paper by Jason Dana and Daylian M. Cain, via Rolf Degen.  Here is further commentary from Degen.

1 Bill April 30, 2017 at 12:11 pm

Re: Claim that how having “advisers disclose potential conflicts of interest — can perversely lower the quality of advice.”

The securities industry will really like that assertion.

But, everyone already knows that having advisers disclose potential conflicts of interest is a bad idea because it will perversely lower the quality of advice.

I have a bridge to sell you.

2 Amigo April 30, 2017 at 2:08 pm

I think Dan Ariely has done research in this area. By exposing our conflicts of interest we feel less encumbered to take advantage of the situation. It casts doubt upon the idea that transparency or casting sunshine on an issue improves behavior.

The form of the study that I recall goes something like this: A jar is filled with money. Person A knows how much money is in the jar. Person B doesn’t know how much money is in the jar. Person A makes more money at end of experiment if they advise person B to guess farther from the actual amount of money. (Person A makes more the worse person B’s guess is). If this conflict of interest is exposed, Person B’s ultimate guesses in the game are farther away from the real amount than if the conflict of interest is not exposed prior to the game. Exposing the conflict of interest makes Person A’s advice worse.

One hypothesis is that Person B, when told of the conflict of interest, underestimates the degree that person A will mislead them. Another hypothesis, is that once told of the conflict of interest, Person A feels more free to be deceptive because person B has been warned.

3 Bill April 30, 2017 at 3:26 pm

I don’t think what the summary of the article says is the same thing as what Ariely and others have stated…of course, that may also hinge on what the phrase “quality of advice” means.

As for disclosure, Lowenstein et al makes some points for disclosure on the same issue:

“Despite its potential pitfalls, disclosure is almost certainly a good thing. It should be a patient’s right to know whether his or her physician is receiving financial benefits from pre- scribing a particular drug or will personally benefit if the patient accepts recommended tests or procedures. The ques- tion for policy should not be whether to disclose but how to ensure that disclosure has its intended effects.”
Research has revealed ways of making disclosure more effective.8 For example, unconflicted second opinions are helpful in enabling patients to assess the effect of disclosed conflicts on the advice they receive. Insurers could rou- tinely cover the cost of (and provide incentives to patients for) obtaining disinterested second opinions. Disclosure works better when it is provided by third parties and when the patient is given time to reflect dispassionately on the ad- vice (and the disclosure) and make his or her decisions while not in the presence of the physician.”

Here is the link to this article by Lowenstein: https://www.cmu.edu/dietrich/sds/docs/loewenstein/UnintendedConsq.pdf

4 Bill April 30, 2017 at 3:29 pm

By the way, there is a little humor in this. At the end of the article, the authors list their potential conflicts of interest: Here is the text.

“All authors have completed and submitted the ICMJE Form for Disclosure of Conflicts of Interest. Dr Loewenstein reported re- ceiving ongoing paid research consulting for CVS/Caremark, institutional support for serving as research consultant for Humana, and pending institutional support for a grant from the National Institute of Mental Health. Dr Cain reported insti- tutional support for serving as a paid speaker for Novartis. Dr Sah reported re- ceiving payment for providing expert testimony to the US Department of Justice.”

5 Slocum April 30, 2017 at 2:15 pm

But it makes sense — once providers have disclosed any potential conflicts they feel as though the advisee has been informed and they then can push their preferred option without fear of being blamed for having given self-interested advice later.

That wouldn’t however, necessarily make disclosures a bad idea if those receiving the advice used the information properly. But I fear that the common reaction is — hey, my adviser willingly disclosed his conflict of interest, so he must be exceptionally honest, and therefore I can trust him.

6 jorgensen April 30, 2017 at 12:30 pm

Sure. I am a lawyer. My advice to clients tends to be more cautious than what I would myself do in their circumstances.

7 mulp April 30, 2017 at 1:08 pm

LIke “pick me as your lawyer because I’m the best”?

Or “plead guilty even if innocent because I won’t be able to make it clear to the jury that you were 100 miles away at the time of the crime because finding the video to backup the ticket stub you gave the police is too hard and I don’t have time because of playing golf”?

8 mulp April 30, 2017 at 1:00 pm

Advising individuals to take high risks in life would be fine if no one blamed those same individuals for being impoverished and in need of support in order to live.

If advisors laid out the risks they believe are fantastically virtuous, like, “go to college no matter that size of the debt because if you avoid the 20% odds of lifelong poverty, you will prove you are as worthy as the kid with rich parents who parties his way through school and then gets a great job in his parents company.”

Or, “you should become a coal miners because you will be the hero of rich people living far from and coal burning living in pristine areas, but it’s your fault when you get emphysema which is 80% certainty because you will expect the rich to pay for your health care and that is wrong because they chose a life free from coal pollution and should not pay for your bad choice of high risk work.”

9 Peter April 30, 2017 at 1:00 pm

I see no problem with advisers giving advice that differs from what they would do.
Everyone’s situation is different, and advice that is appropriate for one person could be completely inappropriate for another person.

Accountability, transparency, and disclosure of conflicts of interest are a completely separate issue. Those should occur regardless of the advice given.

10 carlospln April 30, 2017 at 10:26 pm

Since most people have very little money, most people have a lot in common.

Ergo, your first statement is bullshit.

11 Cyrus April 30, 2017 at 1:13 pm

The fact that you are asking for advice can imply you are less equipped to deal with downside risk.

12 Troll Me April 30, 2017 at 7:33 pm

I don’t think many millionaires will be following through on that line of thinking …

13 Milo Fan April 30, 2017 at 1:26 pm

Do they account for one’s station in life? A millionaire can afford to make more risky investments than a middle class person.

14 Anonymous April 30, 2017 at 1:50 pm

I would assume that the advice is better than the behavior. I can say that you should eat about two cheeseburgers a week, and then eat four myself.

My failure at self-control does not actually change that the first is the better path.

15 Anon April 30, 2017 at 2:09 pm

I agree. Most people give more conservative advice than what they would actually follow in the circumstances
….:advice tends to be paternalistically biased in favor of caution.”

16 Abelard Lindsey April 30, 2017 at 2:14 pm

There is often ideological bias in advice. For example, when the first senolytic or mitochondrial DNA therapies become available in international clinics in another 5-10 years, one may find extended family members or friends discouraging one from traveling to undergo these therapies, even when it is clear that they work, simply because of nothing more than an ideological bias against extended healthy lifespan. Of course I would never listen to such advice.

17 rayward April 30, 2017 at 2:24 pm

The near-universal advice to invest in index funds seems cautious, because it’s the near-universal advice. The Trump-effect in the stock market is the result of the near-universal belief that standard Republican policies including cutting taxes paid by wealthy people will unleash an investment surge that produces unprecedented economic growth and a rising market, rather than the financial crisis produced the last time we adopted standard Republican policies. What is cautious advice? In some circles it’s considered the height of bravery to support tax cuts rather than the height of madness. In some circles it’s considered the height of prudence to allow asset prices to collapse during a financial crisis rather than the path to another great depression. People who willingly suspect disbelief make great investment advisers; people tethered to reality don’t. Who are you gonna believe?

18 Anonymous April 30, 2017 at 4:15 pm

Cautious advice is to rebalance your portfolio toward bonds, even despite consensus opinion.

http://money.cnn.com/retirement/guide/investing_basics.moneymag/index7.htm

19 Anonymous April 30, 2017 at 4:11 pm

If you say complexity is square of the parts count, you might put a launch system and an aircraft carrier on the same curve.

20 Alex April 30, 2017 at 5:17 pm

This seems like an issue when folks ask whether to go or not go to law school

21 Moishe Pipik April 30, 2017 at 5:31 pm

The actual original maxim was: “That which is despicable to you, do not do to your fellow.” (Babylonian Talmud, Shabbat 31a)

It was twisted a bit by practitioners and inventors of derived religions which followed about a century after Hillel made this famous statement.

22 Kevin- May 1, 2017 at 10:19 am

“Despite the near universality of the maxim that one should treat others as one ought to be treated, even well-intended advisers often advise others to act differently than they choose for themselves.”

This doesn’t seem much of a contradiction. How we treat people is distinct from offering advice. We interact socially with each other constantly, and that’s where the golden rule (“do unto others…”) is meaningful. The act of seeking or giving advice is a particular social exchange. The more apt question is, why does so much advising fall into the realm of “Do as I say, not as I do.”

23 Ricky Tylor May 2, 2017 at 6:15 pm

We should always be ready to take advice and always ready to learn, but then it also is very crucial that we make our own choice and one that we know can reward us. If we make right choice then we will always be able to perform well. I do Forex trading and with broker like OctaFX, it’s ever easy since they are high class with having small spreads at 0.1 pips, high leverage up to 1.500 while the smooth trading platform like cTrader, it’s perfect for me!

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