Two features of the real world seem missing in much of economic theory. One is the fact that decision makers often make their decisions after being persuaded to do so by someone else. For example, investors seek advice from brokers who try to persuade them to select a certain stock or mutual fund, while salesmen try to persuade people to buy one product rather than another. If the object of persuasion is an investment defined as a lottery over monetary prizes, one question is what features of a potential investment do people find persuasive or convincing enough to lead them to choose it? In other words, what features of these distributions or lotteries might the broker choose to highlight in order to persuade his or her client? Would he or she stress the possibility of winning a lot of money or would he or she compare the investments on the basis of their least desirable outcomes. Would he or she focus on the variance or on other aspects of the investments? Other questions also arise. Do different types of people find different features of distributions more persuasive, and if so, what factors are important in this relationship? Does the level of competition in advice markets in the financial industry (i.e., competition between brokerage houses) alters the type of advice that is offered to individuals, as compared to the type of advice that would be offered without such competition, and is such competition welfare enhancing? How is advice giving connected to "economic paternalism" (i.e., the motive to advise an individual on the basis of what you think is best for him or her) and what are its welfare implications? Using experimental techniques we will try to answer these questions and more.
The experimental approach offers many advantages for such a project. It will allow the experiment to systematically vary aspects of the environment, such as the level of competition and the amount of information the decision maker has which are difficult to observe in actual investment markets. It also allows the control of the advice available to the adviser, something not possible in the field.
Broader Impacts: This proposal focuses on persuasion in individual decision problems. This research will increase understanding of what language people find persuasive and in what circumstances. It will also establish how the level of information the investors have and how much competition there is amongst advisers affect the advice given. This can help to inform lawmakers on what types of information about investments should be required, if any, by advisors. It also can shed light on what is best for investors: increased competition, or increased information. Finally, it could provide valuable information to investment advisers about how to better inform their clients.
