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American Economic Review: Vol. 101 No. 3 (May 2011)

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The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest

Article Citation

Loewenstein, George, Daylian M. Cain, and Sunita Sah. 2011. "The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest." American Economic Review, 101(3): 423-28.

DOI: 10.1257/aer.101.3.423

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.

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Authors

Loewenstein, George (Carnegie Mellon U)
Cain, Daylian M. (Yale U)
Sah, Sunita (Duke U)

JEL Classifications

D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief


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