A word of advice

When it comes to decision-making, individuals seek information. They can ask for advice from a trusted source or observe the actions of others and what is relayed in the media. New research, however, reveals that seeking advice from an expert is usually more reliable.

by Columbia Ideas at Work
Last Updated: 23 Jul 2013

The research by Bogaçhan Çelen from Columbia Business School, Shachar Kariv from the University of California in Berkeley and Andrew Schotter of New York University focused in particular on investment decisions. Çelen and co wanted to find out how investors reach the conclusion to buy or sell their stock.

The researchers designed an experiment in which the same information was conveyed through both personal observations and professional advice. To guarantee high-quality advice and reproduce real-life experience whereby one pays for expert opinion, the advisors were all paid.

The experiment revealed that participants were far more likely to act on advice, and that those who heeded  advice had a clearer understanding of the situation. "The nature of asking for advice makes people pay closer attention, and they therefore learn faster."

This is encouraging, particularly in the investment sector, which is vulnerable to herd behaviour. Although mass behaviour can sometimes be rational, it occasionally gives rise to panicked and misguided movements, such as the internet bubble of the late 1990s. Seeking advice is more conducive to level-headed decision-making.

Source: An experimental test of advice and social learning
Bogaçhan Çelen, Shachar Kariv, Andrew Schotter
Columbia Ideas at Work, Jan 19 2007

Review by Emilie Filou

http://celen.gsb.columbia.edu/pdfs/advice.pdf

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