An offer you can refuse: the effect of transparency with endogenous conflict of interest

James Tremewan | University of Vienna

We study the effects of transparency on information transmission and decision making theoretically and experimentally. We develop a model in which a decision maker seeks advice from a better-informed adviser whose advice might be swayed by a side payment from an "interested" third party. Transparency enables the decision maker to learn the decision of the adviser regarding the side payment. Prior theoretical and experimental research mostly found that transparency is ineffective or harmful to decision makers. Our model predicts that transparency is not harmful and, depending on equilibrium selection, may improve the accuracy of decision makers. Our experiment shows that transparency does indeed improve accuracy, especially if it is mandatory. I will also present preliminary experimental results on an extension where advisers can send a free text message to convince the decision maker to follow their recommendation.