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Disclosure effective in avoiding conflicts of interest

Research finds disclosure can be a 'successful intervention' in managing conflicts

10 February 2014

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By Manju Manglani, Editor (@ManjuManglani)

Disclosure is an effective means of avoiding conflicts of interest, research has found.

The study found that, when conflicts can be avoided, disclosure successfully deters advisers from accepting conflicts so that they have nothing to disclose except the absence of conflicts.

The researchers said that, because advisers are averse to being viewed as biased, policies designed to activate reputational and ethical concerns will motivate them to avoid conflicts of interest.

"Disclosure doesn't seem to be much good when conflicts are unavoidable, but it does seem to help when advisers have a choice about whether to subject themselves to conflicts," said George Loewenstein, professor of economics and psychology in the Dietrich College of Humanities and Social Sciences at Carnegie Mellon University.

"A nice feature of disclosure is that it is, in effect, 'self-calibrating'," he added.

Requiring disclosure of conflicts has become a popular way of trying to protect clients from biased advice, but previous research has shown that mandatory disclosures have little impact on advice recipients and may even lead advisers to give more biased advice. However, virtually all of the prior studies questioned the effectiveness of conflicts disclosures that advisers were unable to avoid.

For the study, the researchers conducted three experiments with monetary stakes to determine how conflicts influence advisers. The results of the first experiment replicated previous research and showed that disclosure led advisers to give higher (and more biased) recommendations than non-disclosure.

In the second experiment, the researchers found that advice was higher (and more biased) for those who chose conflicted incentives than for those who did not, and that advisers in the disclosure condition gave significantly less biased advice than those in the non-disclosure condition. When advisers could eschew a conflict, therefore, disclosure encouraged them to do so.

The final experiment found that, similar to mandatory disclosure, voluntary disclosure led advisers to avoid conflicts and to then disclose their freedom from conflicts to advisees.

"Our findings suggest that disclosure can become a successful intervention to managing some conflicts of interest if it motivates professionals or providers to avoid such conflicts," concluded Sunita Sah, lead author of the study and assistant professor of strategy, economics, ethics and public policy at Georgetown University.




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