Do voluntary payments to advisors improve the quality of financial advice? An experimental deception game

Vera Angelova and Tobias Regner

Journal of Economic Behavior & Organization, 2013, vol. 93, issue C, 205-218

Abstract: The market for retail financial 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 financial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the conflict 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. Advisors are most truthful, when mutual opportunities to reciprocate exist, and when the voluntary payment is largest. Our analysis identifies the third stage bonus payment as the key feature for success as it allows for an interplay of reciprocal behavior between clients and advisors.

Keywords: Financial advisors; Asymmetric information; Principal–agent; Sender–receiver game; Deception; Reciprocity; Experiments; Voluntary payment (search for similar items in EconPapers)
JEL-codes: C91 D03 D82 G20 L15 M52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:93:y:2013:i:c:p:205-218

DOI: 10.1016/j.jebo.2013.03.022

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