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Faculty Research Working Paper Series
Hannah Riley Bowles
Senior Lecturer in Public Policy
phone: (617)496-4717
fax: (617)496-2850
Mechanisms for Enhancing the Credibility of an Adviser: Prepayment and Aligned Incentives.
Patt, Anthony G., Hannah Riley Bowles, and David W. Cash. "Mechanisms for Enhancing the Credibility of an Adviser: Prepayment and Aligned Incentives." KSG Faculty Research Working Paper Series RWP06-010, March 2006.
Abstract
We tested the effectiveness of prepayment for advice and aligned incentives as mechanisms for enhancing trust in unfamiliar advisers in decision-making under uncertainty. Participants were low-income Zimbabweans who played two rounds of the Monty Hall three-door game. In round 1, participants who purchased advice were significantly more likely to follow advice for how to win the game than were participants who received free advice. In round 2, the apparent effectiveness of advisers’ suggestions in round 1 moderated participants’ propensity to follow advice. If the round 1 advice appeared wrong, the credibility enhancing benefits of prepayment diminished. If the advice appeared right, the benefits of prepayment maintained. Hypotheses with regard to the benefits of aligned incentives received only weak support.
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