Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148866
Authors: 
Angelova, Vera
Regner, Tobias
Year of Publication: 
2016
Series/Report no.: 
SFB 649 Discussion Paper 2016-030
Abstract: 
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.
Subjects: 
financial advisors
asymmetric information
principal-agent
sender-receiver game
reciprocity
experiments
voluntary payment
JEL: 
C91
D03
D82
G20
L15
M52
Document Type: 
Working Paper

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