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

Arbeitspapier

The market for retail financial products (e.g. investment funds or insurance) 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. Across treatments, there is significantly more truthful advice when both clients and advisors have opportunities to reciprocate. Within treatments, the frequency of truthful advice is significantly higher when the voluntary payment is large.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2016-030

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Asymmetric and Private Information; Mechanism Design ; Financial Institutions and Services: General ; Information and Product Quality; Standardization and Compatibility ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: financial advisors ; asymmetric information ; principal-agent ; sender-receiver game ; reciprocity ; experiments ; voluntary payment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Angelova, Vera ; Regner, Tobias
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/148866
• Last update: 10.03.2025, 11:43 AM CET