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05 Jul 2006Working Paper Summaries

Do We Listen to Advice Just Because We Paid for It? The Impact of Cost of Advice on Its Use

by Francesca Gino

People make decisions every day by weighing their own opinions with advice from other sources. But do we know whether people use advice in a way that is helpful to them? In two experiments performed under controlled, laboratory conditions, Gino found that all else being equal, people weigh advice differently according to the amount of money they pay for it. Also, the cost of advice affects the degree to which people use it. Key concepts include:

Decision makers may rely on costly advice more heavily than free advice.
The cost of advice did not affect the value gained by following the advice.
Cost-of-advice research results might interest the consulting and medical professions.
We need to better understand decision makers' sensitivity to the cost they pay to gain advice.

Author Abstract

When facing a decision, people often ask others for advice. Whether people use advice in a way that is helpful to them is not well understood. How do people evaluate the usefulness of the advice they receive? Drawing on aspects of behavioral decision theory, this paper argues that the cost of advice, independent of its quality, will affect how it is used. Two experiments were conducted. In both studies, participants were asked to answer different sets of questions about American history. Before they answered some of the questions, I made available advice on the correct answers. In the first study, participants had the opportunity to choose whether to get this advice for free or to pay a certain amount of money for it. In the second study, participants received either free or costly advice by default. The results show that participants used costly advice significantly more than they used free advice.

Paper Information

Full Working Paper Text
Working Paper Publication Date: September 2004, revised February 2006
HBS Working Paper Number: 05-017
Faculty Unit(s): Technology and Operations Management

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Francesca Gino

Tandon Family Professor of Business Administration
Unit Head, Negotiation, Organizations & Markets

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