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Tuesday, September 29, 2020

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

Gino, F. (2008). 
Organizational Behavior and Human 
Decision Processes, 107(2), 234–245. 


When facing a decision, people often rely on advice received from others. Previous studies have shown that people tend to discount others' opinions. Yet, such discounting varies according to several factors. This paper isolates one of these factors: the cost of advice. Specifically, three experiments investigate whether the cost of advice, independent of its quality, affects how people use advice. The studies use the Judge-Advisor System (JAS) to investigate whether people value advice from others more when it costs money than when it is free, and examine the psychological processes that could account for this effect. The results show that people use paid advice significantly more than free advice and suggest that this effect is due to the same forces that have been documented in the literature to explain the sunk costs fallacy. Implications for circumstances under which people value others' opinions are discussed.

From the Discussion

Many of the decisions people make on a daily basis result from weighing their own opinions with advice from other sources. The present work explored one factor that might affect the use of advice: advice cost. In particular, the initial hypothesis was that, independent of its quality, people would weigh advice significantly more when it costs money than when it is free. This hypothesis was tested in three experiments requiring participants to answer questions about US history with or without advice from others.  The results of the studies show that participants relied more heavily on advice when it cost money than when it was free. The results also suggest that this paid-advice effect is due to the same forces that have been documented in the literature to explain prior instances of the sunk costs fallacy.  

The cost of advice affected the degree to which participants used advice but did not affect the value gained by following advice. In the studies, advice came from another participant who was randomly chosen on a question-by-question basis. On average, advisors were as equally informed or knowledgeable as judges. In fact, individuals who were history experts could not participate in the studies. Moreover, participants had no opportunity to assess the accuracy of advisors’ estimates. Nor had they the opportunity to assess the accuracy of their own estimates, as no performance feedback was provided. When advice cost money, participants weighed their personal opinions less than others’. When advice was free, they instead weighed their personal opinions more than others’.