One of the most powerful distortions that besets the decision making process is conflict of interest. When a person has conflicting interests in a situation it becomes very difficult to avoid the type of conscious and unconscious biases . Why wasn’t Arthur Andersen doing an effective job of auditing Enron’s books? The obvious answer is greed. As a for-profit organization, Andersen did not necessarily place full and accurate auditing of their clients as a primary motivation. Auditing firms want repeat business from their clients, and an audit that threatens a client’s financial picture is not likely to make for a happy customer. At the individual level, it is common for auditors to be offered positions with an audit client after making connections during the course of an audit. The potential for a lucrative job offer can bias auditors against providing the most accurate audit.

It’s clear that conflicts of interest are a long-standing source of bias in decision making situations. One of the primary tools that companies and regulatory bodies have used to fight it is disclosure. The idea of disclosure recognizes that totally eliminating conflicts of interest is a challenging goal, and offers that a public declaration of these conflicts gives professionals an incentive to “be on their best behavior”, and gives the public notice that certain things should be taken with a grain of salt. Is disclosure an effective way to prevent conflict of interest? New results from experimental economics suggests the answer is no.

Daylian M. Cain, George Loewenstein, and Don A. Moore present evidence in a new paper — The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest. They found that not only did people not discount the advice from biased advisors enough to account for their conflict of interest, but that, perversely, making the disclosure sometimes caused advisors in experiments to bias their advice even more, presumably on the basis that making a disclosure reduces the moral imperative to provide accurate and unbiased advice.
From the abstract:

Conflicts of interest can lead experts to give biased and corrupt advice. Although disclosure is often proposed as a potential solution to these problems, we show that it can have perverse effects. First, people generally do not discount advice from biased advisors as much as they should, even when advisors’ conflicts of interest are disclosed. Second, disclosure can increase the bias in advice because it leads advisors to feel morally licensed and strategically encouraged to exaggerate their advice even further. As a result, disclosure may fail to solve the problems created by conflicts of interest and may sometimes even make matters worse.

Read more: The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest