The downside of disclosure, and other tips

By Mark Burgess | October 15, 2018 | Last updated on November 29, 2023
3 min read

Last month, behavioural economics consulting firm BEworks hosted a financial services summit in Toronto. One of the keynote speakers was George Loewenstein, a pioneer in the field and professor of economics and psychology at Carnegie Mellon University in Pittsburgh.

Here are three lessons from his talk.

1. “Ironically, disclosure increases pressure to comply with distrusted advice.”

Disclosures abound in financial services, from Fund Facts to conflicts of interest lists. Though they’re the most common response to conflicts, disclosures are rarely effective and often backfire, Loewenstein said.

Disclosures can lead advisors to give more biased advice, knowing that the recipient has been warned. A stack of compliance paperwork doesn’t lead the recipient to discount the advice, either.

“Ironically, disclosure increases pressure to comply with distrusted advice,” he said. “Because after your advisor discloses that they have a conflict, if you don’t follow their advice, what’s the natural attribution?”

Advice recipients worry about giving the impression that the conflict of interest corrupted the advisor, making it harder for them to reject recommendations after a conflict is disclosed, Loewenstein said.

He described the phenomenon as “insinuation anxiety.” A forthcoming paper uses the term as its title, but he has written about it before in a medical context, where patients feel increased pressure “to take the advice due to fear of signaling distrust of the physician.”

2. “It’s the adult equivalent of children shaking their piggybanks.”

The ostrich effect describes humans’ tendency to bury their heads in the sand when faced with bad news. Investors are no exception.

Loewenstein said we’re far more keen to look at the value of our portfolios when the market is up than when it’s down. People even go online on weekends to admire the results when they know markets are closed, he said.

“In economics, the definition of information is that you’re learning something new. [That behaviour] stretches the notion of information because you’re not really learning anything new. You’re just paying attention to information,” he said.

“It’s the adult equivalent of children shaking their piggybanks.”

While the goal is to have the most money at retirement, traditional models are off in their understanding of investor behaviour, he said.

“The reality for investors is they live with their portfolios day to day. They get pleasure and pain from sitting on their portfolios.”

Advisors need to consider their communication approach based on when clients are paying attention and on their emotional investment. Clients may be less receptive than you would expect during a downturn, for example. If their portfolio is still suitable, you can remind them of that so they don’t have to keep checking.

3. “If we don’t have to think about something deeply, we don’t generally think about it very deeply.”

Mental laziness afflicts everyone. Loewenstein referred to research from 2004 on “partition dependence” in resource allocation. Participants were given two choices for allocating a $20,000 portfolio between Apple and IBM stocks: roughly $10,000 in each, or $3,000 in Apple and $17,000 in IBM.

They were then asked to choose between two portfolios divided by shares: 657 shares of Apple (at $15.21) and 109 shares of IBM (at $91.72), or 187 shares of each.

In both cases, a majority chose the evenly distributed portfolios—even though the one with 187 shares of each stock was the same as the one with the $17,000/$3,000 split.

“We all like to diversify,” Loewenstein said.

It’s a bias advisors should keep in mind when presenting options to clients. Stock investments are usually expressed in the number of shares, while mutual fund investments are expressed in dollars. Advisors may want to show monetary and share breakdowns for each to explain portfolio diversification.

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Mark Burgess

Mark has been the managing editor of since 2017. He has been covering business and politics for more than a decade. Email him at