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Emory University School of Law




The modern capitalist society, characterized by decentralized decision making and increasingly sophisticated products and services, turns on relationships of epistemic reliance, where laypersons depend upon advisors to guide their most important decisions. Yet many of those advisors lack real expertise and may be biased by conflicting interests. In such situations, laypersons are likely to make suboptimal decisions that sometimes aggregate into systematic failures, from soaring health care costs to market crashes. Regulators can attempt to manage the symptoms and worst abuses, but the fundamental problem of biased advice will remain. There are many potential policy solutions, from outright bans on conflicting interests to disclosure mandates, yet their comparative effectiveness is poorly understood. By constructing a decision task for human subjects and providing advice in various scenarios, this Article reports new experiments testing alternative policy mechanisms. Prior research has shown that disclosure mandates can be deleterious if they make advisors more biased, but this paper contextualizes those findings. It turns out that disclosures may be valuable in settings where relative expertise is low, but deleterious where relative expertise is high. By also disaggregating the data, one finds that disclosures of conflicting interests may hurt laypersons in the majority of situations where the conflicted advice is not actually biased. Thus, the evidence suggests that, if they are to be at all effective, disclosure mandates should be narrowly tailored. Most importantly, the evidence shows that a disclosure mandate improves layperson performance when unbiased advisors are also available. Yet laypersons appear to be poor judges of their need for unbiased advice, so market mechanisms may be ineffective for provisioning unbiased advice. In the end, the presence of an unbiased advisor is the strongest determinant of layperson performance, and thus policymakers must develop ways of aligning the interests of advisors and laypersons. Pay-for-performance, blinding of experts, and mandatory or subsidized second-opinion policies are likely to be helpful in aligning these interests.

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