People Feel Pressured to Take Advice from Advisors who Disclose Conflicts of Interest
March 4, 2013 – A study led by a Georgetown business professor found a perverse effect of requiring advisors, such as doctors, real estate agents, and financial planners, to disclose conflicts of interest – it pressures advisees to comply with their advice.
“People experience conflicting reactions to disclosure,” says Sunita Sah, assistant professor of business ethics at the McDonough School of Business (MSB). “Advisees who received disclosure were aware that the advice may be biased and trusted it less. Yet they also were more likely to comply with their advisor’s recommendation and be less satisfied with their choice.”
The study, “The Burden of Disclosure: Increased Compliance with Distrusted Advice,” was published in the Journal of Personality and Social Psychology.
Sah says the pressure placed on consumers to comply with their advisors’ decisions isn’t based on altruism but rather the reluctance to appear unwilling to help advisors once their interests have been disclosed.
The reaction is what Sah calls the “panhandler effect,” in which advisees feel personally obligated to help satisfy their advisors' self-interests.
“Disclosure makes it apparent how advisees could help, or not help, their advisor,” she explains. “Advisees felt uncomfortable rejecting the advisor’s recommendation, particularly when the disclosure came directly from their advisor. The disclosure became an implicit favor request.”
Another perverse effect of disclosure that Sah is currently investigating is what she calls “insinuation anxiety.”
Say a patient has been advised by his or her doctor to enter a clinical trial but also hears that the doctor will receive a payment if the patient enrolls in the trial.
“Now, if the doctor hadn’t disclosed anything, the patient might think, ‘Well I’d rather not enter a clinical trial because I don’t like the potential side effects or it’s too risky,’ ” Sah explains. “But now that the doctor has disclosed that conflict of interest, there is one salient reason why the patient may want to reject the advice … that’s because the patient no longer trusts that it is the best advice. However, patients feel less compelled to reject the advice because they don’t want to signal distrust to the doctor. They feel more uncomfortable turning down the doctor’s recommendation because it could insinuate that they believe the doctor to be biased.”
Industry and Medicine
Sah, who teaches a course in the social responsibility of business, found herself drawn to conflicts of interest after her experience in the medical field.
Earlier in her career, she worked as a doctor in the United Kingdom’s National Health Service and later worked as a management consultant to the pharmaceutical industry.
“That’s when I became really interested in conflicts of interest and the relationships between industry and medicine,” she said. “Industry and the medical profession are very much intertwined and I’m fascinated with the rationalizations both sides use to satisfy their own interests.”
Sah holds the equivalent of an M.D. from the University of Edinburgh, U.K., in addition to an MBA from the London Business School and a Ph.D. in organizational behavior from Carnegie Mellon University.
Weighing Costs of Transparency
Sah’s current research on conflicts of interest focuses on three areas – why professionals in high-level positions accept conflicts of interest that appear to be unethical, which situations increase or decrease bias in advice and the impact of advisors’ conflict of interest on advisees.
Sah says people who expected disclosure to be the “cure-all” for eliminating conflicts of interest have been fascinated yet unhappy with her findings.
She says the solution could be to remove the burden from the consumer and take steps to improve how disclosure is implemented. Her studies show encouraging results from allowing consumers to make decisions in private or providing a “cooling-off” period after which consumers can change their minds.
“People’s desire for transparency and disclosure is not always bad,” Sah says. “However, disclosure can have unintended consequences and we need to understand when disclosure works well and when the costs of transparency may outweigh the benefits.”