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Disclosures About Disclosures: Can Conflict of Interest Warnings be Made More Effective?

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  • Ahmed E. Taha
  • John V. Petrocelli

Abstract

People regularly rely on advisors who have conflicts of interest. The law often requires advisors to disclose these conflicts. Despite these disclosures, people generally insufficiently discount conflicted advice. This might be partly due to people interpreting the very fact that the advisor is disclosing a conflict of interest as a sign that the advisor is trustworthy, undermining the purpose and effectiveness of the disclosure. This article presents the results of an experiment indicating that requiring advisors to also disclose that they are legally required to disclose their conflict of interest makes people discount their advice more. This occurs, at least in part, because such advisors are viewed as less trustworthy than advisors who merely disclose their conflict of interest without also stating that the disclosure is legally required.

Suggested Citation

  • Ahmed E. Taha & John V. Petrocelli, 2015. "Disclosures About Disclosures: Can Conflict of Interest Warnings be Made More Effective?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 12(2), pages 236-251, June.
    • Handle: RePEc:wly:empleg:v:12:y:2015:i:2:p:236-251
    DOI: 10.1111/jels.12071
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    References listed on IDEAS

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    1. Daylian M. Cain & George Loewenstein & Don A. Moore, 2005. "The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 1-25, January.
    2. Daylian M. Cain & George Loewenstein & Don A. Moore, 2011. "When Sunlight Fails to Disinfect: Understanding the Perverse Effects of Disclosing Conflicts of Interest," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 37(5), pages 836-857.
    3. Libby, R & Tan, HT, 1999. "Analysts' reactions to warnings of negative earnings surprises," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 415-435.
    4. Rick Johnston, 2013. "Does Analyst Stock Ownership Affect Reporting Behavior?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1-39.
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