11 - The Market for Advice

Summary

This chapter asks and attempts to answer a set of questions we have not dealt with previously. More precisely, in all of our previous chapters (except for Chapter 9 on social learning), people had no choice as to what information they received before they made a decision. They just received advice. We now ask whether there are other types of information they might prefer. We have also never asked whether people have preferences over who gives them advice. Are there types of people that are perceived as good advisors and other types that are perceived as unreliable? If so, who are those “good advisors” and what characteristics do they share? The ... first question is important because it asks how important advice is to decision makers. If people consider advice only when they have no other source of information, then its influence will be diminished when they are given access to alternatives. However, if advice has an inordinate sway over people, if they seek it out, then we need to understand why advice is so desirable or persuasive. The second question is also important because, if certain types of people are considered good advisors, then this perception may confer rents on them which may or may not be warranted. To answer these questions, we set up a market for advice and advisors. In general, we find that subjects bid significantly more for data than they do for advice, i.e., they prefer information that they can use to make their own decision rather than having an advisor offer them advice. We also ... find some evidence for “perception rents” for economics majors, whose price is elevated in the market, and a certain amount of support for what we call the ”chauvinistic bias,” meaning that subjects tended to bid more for advice from people sharing the same major as themselves than for people of other majors.