Giving advice under uncertainty: What you do, what you should do, and what others think you do

The current paper examines whether advisors rely primarily on their personal beliefs and risk preferences or on their estimates of their clients’ beliefs and risk preferences. The results of two studies show that risk preferences predicted for other individuals were more risk neutral than personal risk preferences under uncertainty, though no differences were found between personal beliefs and those attributed to other individuals. This suggests that advice that is based primarily on personal risk preferences may differ from advice which is based primarily on advisors’ estimates of clients’ risk preferences. The results of a third study show that advisors rely on their personal risk preferences when giving advice. Based on these findings we suggest that managers should be cautious in accepting advice concerning which alternative ought to be pursued, as advisors tend to instinctively rely on their own risk preferences, which may differ from the manager’s actual risk preferences.