Economics of Advice

I've posted my most repeated advice and why taking advice can be so important. Even though we know we don't know everything, it's often hard to take advice. There's a way to fix that, pay for it. Here's the experiment:

Dozens of students were asked questions about American history and received small cash prizes for correct answers. The students were either given the option of receiving advice on the correct answers, or advice was imposed on them. Sometimes this advice was free; other times it was paid for out of the students' winnings. Crucially, the advice always came from the same source - in the form of the answer that a student from a pilot session had given to the same question - so the quality of advice was held constant regardless of whether it was free or paid for.

Throughout the study, the participants took more account of advice they had paid for than advice they were given free, even though it was made clear to them that the advice was of the same quality. A final study showed the students took even more account of advice if it was made more expensive.

Gino said her findings could be explained by a phenomenon in decision-making theory known as the sunk cost fallacy. This is our desire to justify our past investments through our present and future behaviour - it's why that expensive pair of shoes that you never wear is still cluttering up your cupboard. In the case of advice, it seems we feel compelled to use guidance we've paid for, so as to justify the expense. And perhaps it explains why expensive frauds can sometimes be so influential.

This explains why expensive therapy can be so helpful. Just so you know, I love getting specific questions from readers. Feel free to pay me for extra effect.