Are Financial Advisors Money Doctors or Charlatans? Evidence on Trust, Advice, and Risk Taking in Delegated Asset Management


We test the effects of advice and trust on risk-taking in three online experiments designed to elucidate under what conditions financial advice may increase risk-taking, irrespective of advisor performance. In our study, investors made 100 decisions, selecting between one of two alternatives: risky or conservative. We manipulate the suggestion of an advisor (risky vs. non-risky investments), the fee of the advice, as well as the trustworthiness of the advisor (by increasing the transparency of the advice presented) to test the effect of the advice on risk-taking. The results show that individuals asymmetrically follow the advice they received, with a bias towards following more risky than conservative advice. Moreover, trusted advice was more persuasive irrespective of what the advisor suggested and even the fee is higher.

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