Lay Evaluation of Financial Experts: The Action Advice Effect and Confirmation Bias

Abstract

The goal of this experimental project was to investigate lay peoples’ perceptions of epistemic authority (EA) in the field of finance. EA is defined as the extent to which a source of information is treated as evidence for judgments independently of its objective expertise and based on subjective beliefs. Previous research suggested that EA evaluations are biased and that lay people tend to ascribe higher EA to experts who advise action (in the case of medical experts) or confirm clients’ expectations (in the case of politicians). However, there has been no research into biases in lay evaluations of financial experts and this project is aimed to fill this gap. Experiment 1 showed that lay people tended to ascribe greater authority to financial consultants who gave more active advice to clients considering taking out a mortgage. Experiment 2 confirmed the action advice effect found in Experiment 1. However, the outcomes of Experiments 2 and – particularly – 3 suggested that this bias might also be due to clients’ desire to confirm their own opinions. Experiment 2 showed that the action advice effect was moderated by clients’ own opinions on taking loans. Lay people ascribed the greatest EA to the advisor in the scenario in which he advised taking action and where this coincided with the client’s positive opinion on the advisability of taking out a loan. In Experiment 3 only participants with a positive opinion on the financial product ascribed greater authority to experts who recommended it; participants whose opinion was negative tended to rate consultants who advised rejecting the product more highly. To conclude, these three experiments revealed that lay people ascribe higher EA to financial consultants who advise action rather than maintenance of the status quo, but this effect is limited by confirmation bias: when the client’s a priori opinion is salient, greater authority is ascribed to experts whose advice confirms it. In this sense, results presented in the present paper suggest that the action advice effect might be also interpreted as a specific manifestation of confirmation bias.

Tell Me What I Wanted to Hear: Confirmation Effect in Lay Evaluations of Financial Expert Authority

“…recommended maintaining the status quo) or gave no recommendation at all (Barnoy, Levy, & Bar‐Tal, ; Barnoy, Ofra, & Bar‐Tal, ; Bar‐Tal, Stasiuk, & Maksymiuk, ; Stasiuk, Bar‐Tal, & Maksymiuk, ). Similar results were reported by Zaleskiewicz, Gasiorowska, Stasiuk, Maksymiuk, and Bar‐Tal (), who studied how consumers perceive the EA of financial advisors and showed that individuals attributed greater authority to those consultants who advised action in the context of considering whether to take out a mortgage. However, the latter authors also preliminarily documented that assigning greater authority to experts recommending action might result from consumers' desire to reach congruence between their own opinions and expert recommendations.…”

“…In the first step, the minimal sample size for Experiment 1 and for the two other experiments was calculated. Zaleskiewicz et al (), who previously investigated determinants of EA evaluation in finance, reported a medium sized (partial η 2 = .116, p < .001) interaction effect of participants' opinions and experts' recommendations on the evaluation of financial experts' EA. Therefore, in order to determine the sample size in the present project, we conducted a priori power analyses using G*Power (Faul, Erdfelder, Lang, & Buchner, ).…”

The Effect of Gender on Investors’ Judgments and Decision-Making

“…Consistent with Messick's (2009) statement that "making personnel decisions on the basis of race, gender, ethnicity, or other 'irrelevant' factors is unethical" (p. 73, emphasis added), the existing literature largely examines gender and ethical issues in the performance evaluations context, including evaluating leadership (Hoyt et al, 2009;Koenig et al, 2011), assignment of audit client portfolio (Hardies et al, 2020), as well as evaluating sell-side equity analysts for promotion (Bloomfield et al, 2020) and compensation (Lin & Neely, 2017) among others (see meta-analysis by Koch et al, 2015). Our study extends prior gender and ethics literature beyond the evaluation setting to a judge-advisor setting (Yaniv, 2004;Zaleskiewicz et al, 2016;Baeckstrom et al, 2018; for a review of the judge-advisor paradigm, see Guntzviller et al, 2020), where individual investors rely on and process the advice provided by an expert (i.e., an equity analyst) to make investment decisions.…”

Evaluating experts may serve psychological needs: Self-esteem, bias blind spot, and processing fluency explain confirmation effect in assessing financial advisors’ authority.

“…Our recent research (Zaleskiewicz & Gasiorowska, 2018; Zaleskiewicz, Gasiorowska, Stasiuk, Maksymiuk, & Bar-Tal, 2016) has shown that decision-makers, when evaluating the financial expertise of prospective advisors, are vulnerable to preferring advice that is consistent, as opposed to inconsistent, with their own beliefs. In brief, we investigated how financial recommendations concerning individual investing on the stock market were perceived depending on whether they were, or were not, consistent with laypeople’s own opinions of this financial activity (Zaleskiewicz & Gasiorowska, 2018).…”

“…In our prior research exploring the role of the confirmation effect in evaluating financial experts’ authority (Zaleskiewicz & Gasiorowska, 2018; Zaleskiewicz et al, 2016), we suggested that people are motivated to ascribe greater authority to those experts whose advice confirms their own opinions for three different reasons. First, devaluing the competence of those experts whose recommendations are inconsistent with one’s own beliefs might be an effective strategy to defend self-esteem.…”