How disclosing conflicts of interest can pass the burden to the customer

 

We habitually consult experts to advise on personal and professional matters, but their recommendations can be coloured by conflicts of interest. Commonly advisors are required to disclose conflicts: armed with this information, the consumer can account for bias before making decisions. But evidence shows it's hard to make such adjustments. And new research by Sunita Sah, George Loewenstein and Daylia Cain suggests moreover that disclosure may make consumers feel obliged to follow the advisor's best interests.

Their series of studies collected data using a mobile van offering people chances to win prizes - from gift vouchers to chocolate bars - through a dice-roll lottery. They could choose from lotteries A or B, where overall A's prizes were slightly but evidently better. Before comitting, the chooser met another participant, the 'advisor', who handed them a written recommendation of which lottery to pick. In most cases, the advisor had a conflict of interest - they would also get a go on a lottery, but only if the chooser selected the weaker lottery B. The chooser then made their selection, rolled the dice and left; the advisor would then get their turn, if warranted. Participant numbers ranged from 124 to 278 for individual studies.

In the first study, 53% of choosers took lottery B after merely receiving the advice to do so. When the advisor's recommendation also included text revealing their conflict of interest, compliance advice rose to 81%. Yet in both conditions participants rated lottery A as more attractive (this was consistent across studies). A replication examined whether relatively low stakes were driving this abandonment of self interest, by doubling the prizes and recruiting students with presumably lower income as participants. Without disclosure, only 36% took the recommended B, but disclosure took the proportion to 82%.

Was this an altruistic act, choosers electing to be generous and go on with their day? Unlikely: the post-study survey suggested that after compliance, choosers were less happy, sensed more pressure and felt more uncomfortable about the decision, which doesn't suggest general altruism. Instead, the researchers liken this to a 'panhandler effect', where money is passed over due to discomfort over a face to face refusal. A third experiment investigated this: here, when the chooser learned of the conflict from the advisor compliance stood at 90%. When the information came instead from a 3rd party (embedded in the initial instructions) their compliance dropped to 72%; it's less awkward if you're not told directly by the person who hopes to gain, even if they know you know. And if the 3rd party info also stated the advisor was oblivious that you had been made aware of the conflict, the compliance plummet to 47%. This suggests that when choosers comply, it's partly to avoid the perception that they have betrayed the advisor's interests. Without the shared knowledge - I know that you know I stand to benefit - they're happy to disinherit them.

My only quibble with this argument is that in the final, 47% compliance condition, I might personally view the advisor as shiftier. Holding secret information, I may spend the interaction expectantly waiting for them to 'fess up to the conflict of interest - something the experiment actually prohibits. When they don't, I might feel like punishing them by going against their wishes. However, the post-survey scores suggest that there was no significant difference between how much advisors were liked and trusted in this condition and the other disclosure conditions, which goes some way to minimise this concern.

Overall, disclosure leads to more compliance with the advisors interests, especially when disclosure is face to face. This happens even though trust in the advisor drops, and choosers are less happy with the situation. This suggests that the tactic of disclosure practiced simply may be unhelpful for the chooser and ultimately less conducive to the relationship overall. Sah and colleagues agree that disclosure remains important and necessary, but suggest research into smarter ways to deliver it, as well as alternative approaches when conflicts of interest arise.

Sah, S., Loewenstein, G., & Cain, D. (2013). The burden of disclosure: Increased compliance with distrusted advice. Journal of Personality and Social Psychology, 104 (2), 289-304 DOI: 10.1037/a0030527

Further reading:

 Paul M Healy, Krishna G Palepu, (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature, Journal of Accounting and Economics, Volume 31, Issues 1–3, September 2001, 405-440, DOI10.1016/S0165-4101(01)00018-0.
(link to pdf)

Are organisations led by the limbic system?

(We're reporting from this month's Division of Occupational Psychology conference at the Digest. This post is by Dr Jon Sutton, Managing Editor of The Psychologist, and will also feature in that magazine's March issue. @jonmsutton / @psychmag)

According to keynote speaker Gerard Hodgkinson (Professor of Strategic Management and Behavioural Science at Warwick Business School), ‘Descartes’s error is alive and well in the workplace’. In a bold and wide-ranging address, Hodgkinson made the case for why and how occupational psychology needs to connect with the social neurosciences.


Hodgkinson is bringing psychology into the field of strategic management, trying to help decision makers become more rational. Take how organisations tend to respond to a major threat or opportunity (HMV and Blockbuster come to mind as I write this). Usually there are small, incremental changes, and when it becomes apparent this isn’t sufficient, what does the organisation do? Nothing. There is a period of ‘strategic drift’. Then there is a period of ‘flux’, which on Hodgkinson’s graphic representation looks rather like a tailspin. This is followed by ‘phase 4’, ‘transformational change’ or ‘complete demise’.

But to what extent can psychology shed light on this process? Hodgkinson’s 2002 book ‘The Competent Organization’ argued the case for the centrality of the psychological contribution to organisational learning and strategic adaptation, yet 11 years on, he said, there was still only a passing consideration of affective and non-conscious cognitive processes. Why do we continue to sidestep it?

Using examples from his practice, Hodgkinson demonstrated how strategising is both an inherently cognitive and affective process. Eliciting a cognitive taxonomy from senior figures in a UK grocery firm, he found that although the market conditions had changed dramatically, mental models – individually and collectively – had not. Decision makers were slaves to their basic psychological processes, for example still focusing on the ‘magic number’ of ‘7 plus or minus 2’ competitors.

Hodgkinson showed how he confronts strategic inertia in top management teams, stimulating individual cognitive processes by scenario analysis. Some organisations excel at this: Hodgkinson claims that Shell closed all their facilities within 45 minutes of 9/11. While others were still struggling to comprehend what was happening, their scenario planning had allowed them to take quick and decisive action.

Hodgkinson’s latest research draws on social cognitive neuroscience and neuroeconomics to develop a series of counterintuitive insights. His hope is that these can teach people to be more skilled in their control of their emotional, limbic system. True rationality, he concluded, is the product of the analytical and experiential mind.

Further reading:

Hodgkinson, G., & Healey, M. (2008). Cognition in Organizations Annual Review of Psychology, 59 (1), 387-417 DOI: 10.1146/annurev.psych.59.103006.093612 Pdf freely available here.

When does group conflict lead to better performance?

Is disagreement in teams always a bad thing? Although we don't always welcome it, we can probably agree that differences of opinion can be healthy under the right conditions. But identifying these conditions has been a challenge. There is now consensus that relational conflict, meaning disagreements of a personal flavour, are a hallmark of poor team performance: think of working with a team-mate who disliked you or had permanently low regard for your contributions. Less understood is task conflict, meaning disagreements about how to go about a piece of work. A 2003 meta-analysis by De Dreu & Weingart suggests that overall it also characterises more poorly performing teams. But 23% of those studies found it associated with better performance. So recent research by Bret Bradley and colleagues intended to seek out the key conditions that allow this kind of conflict to flip from disrupting to enabling.

The study followed 117 teams, each composed of five students working together over a semester. Their collaboration culminated in a team project that was used as the indicator of final team performance, which was expected to show variability alongside levels of task conflict measured by a mid-semester survey. What would lead conflict to help rather than hinder? The study hazarded it would be psychological safety: a group-level feature which is present when members perceive low risks and consequences for speaking freely. Bradley's team reckoned that under these conditions task conflict can remain on-task, rather than triggering retribution and spirals of unproductive negative emotion. This allows groups to reap the fruits of task conflict: more diversity of ideas and deeper exploration.

The results of the study suggest that this account is part, but not all, of the puzzle. After controlling for subject matter knowledge using scores on an exam taken earlier in the semester, the research team investigated the conflict-safety-performance relationship. As predicted, teams that scored highly on the psychological safety measure taken mid-semester showed a relationship between more task conflict and better performance on the final project. But the researchers didn't find the expected drop in performance when teams that were psychologically unsafe conflicted; at least, the decrease didn't prove statistically significant. So in this study psychological safety was shown to have benefits, but not to decisively shift conflict from burden to benefit.

More research is needed to understand harmful task conflict and what influences it. Given the benefits of psychological safety, organisations may want to make efforts to facilitate it, by giving permission to speak out; leaders can role model this, even showing they are prepared to be fallible in public. It's noteworthy that a team may work well and be cohesive without necessarily feeling psychologically safe, so it can be worth evaluating exactly what the conditions are within a group, particularly if groupthink and unexamined ideas would pose highly negative consequences.

Bradley, Bret H., Postlethwaite, Bennett E., Klotz, Anthony C., Hamdani, Maria R., & Brown, Kenneth G. (2012). Reaping the benefits of task conflict in teams: The critical role of team psychological safety climate. Journal of Applied Psychology, 97 (1), 151-158 DOI: 10.1037/a0024200

See also De Dreu, C. K. W., & Weingart, L. R. (2003). Task versus relationship conflict, team performance, and team member satisfaction: A meta-analysis. Journal of Applied Psychology, 88, 741–749. DOI:10.1037/0021-9010.88.4.741

What are the pitfalls of moving away from hierarchy?

What's the best way to organise groups of people?  Experimentally-minded organisations have explored the use of 'autonomous workgroups', where teams are led from within rather than being allocated a supervisor. The psychological benefits are apparent: providing workers with more direct autonomy is well-known to promote motivation. Is the relative rarity of such approaches merely down to inertia within the world of work, or are there some challenges that need consideration? 

In a recent article, Jonas Ingvaldsen and Monica Rolfsen of the Norwegian University of Science and Technology present a case study detailing 'Tools', a Norwegian tool company that decided to move from a traditional foreman situation to a flatter structure, partly led by an organisational and national culture that is sympathetic to labour empowerment. The investigators took a qualitative approach, using interviews and focus groups to gather information from team members over 13 years. They began as a new approach kicked off, where each week a different team member took on a spokesperson role. Then, the  workforce was enthusiastic: 'The flat structure has come to stay. We won’t return to the foreman system, where someone points the finger and tells you what to do.'

Yet eight years later, interviews and discussions revealed several issues. Although members wanted to do good by their team, the transient nature of the spokesperson responsibility made it possible to skimp on more onerous and seemingly less essential activities like information-sharing. Moreover, the fact that the spokesperson role was crafted around the team needs meant that when tensions between teams or functions emerged, there were few formal mechanisms to resolve disputes. Spokespeople were unable to enforce decisions that were individually unpopular but better for the larger system:  'self-management ends up with what is optimal for each individual, and that is comfort' - meaning that products were put together on a schedule that was efficient for the team but was harmful to the inventory management.

Tools switched it up. The new system involved distributed leadership, where managerial responsibilities were unbundled and made the responsibility of different team members. In this '5-M' model, one person would look after Man (eg staffing), another Machine, and so on. While this appears to have had some powerful benefits - Mileu specialists can get together in their M-meeting, and discuss how to improve air quality across the organisation - real-life problems don't always fall neatly into boxes. The interviews revealed concerns that non-essential issues often got kicked from one M to another without resolution. Concrete and immediate problems did tend to get resolved rapidly and effectively, but anything big-picture called on co-ordination that no-one was equipped for.

This case study encapsulates some of the benefits and challenges of non-hierarchical methods within large, complex organisations. Are all members dispositionally suited to taking on leadership duties over their existing work? How can they develop mastery and hence satisfaction for these duties when only practiced one week in six? Are the domains that we carve the world into sufficiently legible to the human users who have to operate with them? Worthwhile questions to help us toward a 21st century approach to the workplace.

Jonas A Ingvaldsen, & Monica Rolfsen (2012). Autonomous work groups and the challenge of inter-group coordination Human Relations DOI: 10.1177/0018726712448203

How does availability of men in the environment affect women's career focus?

A recent article argues the ratio of men to women in an environment may influence women's pursuit of lucrative careers. Authored by Kristina Durante and colleagues, it begins by describing a correlational finding: women in US states with proportionately fewer men tend to have fewer babies and have them later, tending instead to be in higher-earning jobs. The rest of the article describes a series of experiments with female university students conducted to explore this.

The first experiment asked 89 participants to examine a set of photographs, ostensibly to test their ability to count frequencies of men and women in scenes from the local environment. Depending on the condition, photographs depicted more men, more women, or an equal sex ratio. Participants then rated items describing the importance of various life goals. The researchers found that participants exposed to a high-female sex ratio prioritised career over family goals to a greater extent than those in the other conditions. Perceptions of sex ratio appeared to shape personal priorities.

There are at least two explanations for why this effect exists. One is that sex ratio shapes the labour market, fewer men entailing more employment opportunities for women. The second is that sex ratio shapes a mating market, making finding a partner harder and thus encouraging a different strategy for life security. To differentiate between these, another experiment replicated the previous one using a similar exposure technique and also asked the 58 participants to rate how difficult it would be to acquire a good job or to find a mate (phrased in terms of marriage and dating prospects). Those participants exposed to a high-female ratio were more likely to see mate-finding as tough, but their expectations for the ease of finding a job were similar to their counterparts. Pulling the data into a model, the researchers demonstrated that putting career first was mediated not by their expectations that good work would be easier to find, but that a good mate would be harder to find.

A final study followed the same design, additionally asking participants to rate their self-perceived value to a mate via items such as "I receive many compliments from members of the opposite sex". Durante's team predicted that those who feel they may struggle finding a mate will be most responsive to these mating-market fluctuations, as they are more likely to end up alone. The analysis bore this out: when the environment was framed as containing many women, only those participants who personally felt they had a lower mate value placed a greater emphasis on career.

This article takes evolutionary research on sex ratios into the study of women's career decisions. It would be fascinating to see the same research pointed towards men, who also have desires to produce children and to advance their careers; does the mating market have a similar influence? The evolutionary argument predicts not, as it is based upon the concept of deep-seated divisions of labour based on biological differences. However, it could be that gender-based pay differentials shape this effect, and I wonder how different it would look in a society that had more equal pay than the US.

Durante, Kristina M., Griskevicius, Vladas, Simpson, Jeffry A., Cantú, Stephanie M., & Tybur, Joshua M. (2012). Sex ratio and women's career choice: Does a scarcity of men lead women to choose briefcase over baby? Journal of Personality and Social Psychology, 103 (1), 121-134 DOI: 10.1037/a0027949

Does a man's facial dimensions influence his leadership performance?

You might notice that many studies we cover rely on survey rating data. This reflects the field's research focus and its desire for 'ecological validity' - examining real-world contexts rather than simplified laboratory set-ups. Nonetheless, as someone with a heterodox psychology background, I find it heartening when studies choose more imaginative measures.

Here's a great example, entirely rating-free: a study that evaluates whether male CEO appearance affects company performance by actually measuring CEO face width-to-height (WHR) ratios in photos. The study suggests that in certain leadership contexts, leaders with larger WHR ratios generate higher firm returns on assets, seemingly due to such faces conferring a psychological sense of power needed for dynamic decision-making.

A similar finding that relied on rating data would be as much about perception as reality, but by using objective dimension measurements, the authors can make the claim that biological features directly predict work performance. So is it time for HR departments to pull out the callipers? Let's hear more on the study.

Elaine Wong and colleagues gathered data from 55 Fortune 500 organisations, collecting online photos and available financial data. In another example of a neat measurement variable, they conducted content analysis on letters to shareholders, analysing the frequency of words that reflect high and low cognitive complexity - the tendency to see the world as nuanced and graded (suggested by words like "possibility" or "trend") or black and white ("absolutely", "irreversible"). These letters are generally understood to be the work of whole senior teams, not the CEO alone, so they tell us which company teams are cognitively simple, making them more likely to take decisions quickly in deference to authority.

It turns out that only for companies run by cognitively simple teams did wider-faced CEOs delivered higher firm return on assets. In cognitively complex teams, where decisions are made more collectively and systematically, there appears to be less opportunity for firm, powerful leaders to stamp their authority. A fascinating nuance to the study.

A skeptical view could mount a counterclaim: CEO faces don't matter, but cognitively simple decision-makers think they do. Their black-and-white thinking demands a stereotypically solid-looking leader, or perhaps their history of solid-looking leaders has conditioned them to black-and-white-thinking. Either way, such teams then compete over CEOs of desired appearance and, all things being equal, the most attractive firms will be better at acquiring them. The lack of an effect in cognitively complex teams? Faces don't loom large in their choices of leaders.

It's an ad-hoc argument, weakened by the fact the study analysis controlled for firm performance in previous years. However, it's still possible that a firm on the verge of an upturn has a cachet they use to draw in leaders of the desired mould. Until a study explicitly measures psychological power, and demonstrates that it is the linking variable between the biological characteristic and performance, it remains possible that leaders with WHR are simply jumping on board to put their face to success.

All in all, a methodologically sharp study that opens up examination of how biological features act as markers for work-relevant capabilities.

Wong, E., Ormiston, M., & Haselhuhn, M. (2011). A Face Only an Investor Could Love: CEOs' Facial Structure Predicts Their Firms' Financial Performance Psychological Science, 22 (12), 1478-1483 DOI: 10.1177/0956797611418838

Productivity forecasts depend on whether you focus on work completed or time taken

People estimate small tasks to take longer than they actually do, but underestimate the time needed for larger tasks, leading to dangerous overconfidence - a good reason to view projects as series of small steps. But what happens when you focus estimates on how much work will be completed in a fixed time period, as is done in incrementally managed projects, common in IT and other industries? A recent article demonstrates that flipping your focus reverses the biases: people believe they will be less productive within a long period of time than in a short period.

Torlief Halkjesvik and colleagues from the University of Oslo began with simple task estimation. Following a pilot, their second study asked student participants within two conditions to imagine that they had read a book excerpt (the task was framed retrospectively to avoid encouraging ambitious estimates to whip up motivation). One condition involved estimating the time taken to read a fixed piece of text, either two or 32 pages. The work estimation condition involved estimating the amount of text read in either three or 48 minutes.

In terms of estimated productivity - page reading per minute - participants thought a big task was more efficient than a small one, but that proportionately less gets done in a larger amount of time than a smaller one - seemingly a paradox. To Halkjesvik and co-authors, this simply demonstrates we have trouble with magnitude, dilating small things - "it's not *that* small!" and compressing larger ones. This has parallels with other features, such as Vierordt's law on time estimation, and the central tendency of judgment. 

Moving to an occupational setting, the authors informed 94 IT professionals about a genuine (historic) software project, broken into 10 ‘UserStories’ - discrete components common to IT projects. The study again avoided personal motivation, here by focusing estimates on the productivity of a hypothetical project developer. Unlike the other studies, no effect was found for imagined time efficiency for completing smaller (two User Stories) vs larger (five) tasks, but participants estimated work delivered in 20 hours would be more efficient than that over 100. It's worth noting the study as a whole overestimated the true productivity of the historic project, so the estimation of work completed in short windows reflects a pinnacle of unwarranted overconfidence.

These studies suggest "smaller magnitudes (of work or of time) are judged as disproportionately larger than large magnitudes." Breaking a software project down into a quick succession of releases may encourage unrealistic estimates of just how much of the project will get done in each release. Therefore, it's valuable to reverse your thinking and focus on the sub-tasks involved, and sense-check whether their durations really do fit your fixed deadline.

Halkjelsvik, T., Jørgensen, M., & Teigen, K. (2011). To read two pages, I need 5 minutes, but give me 5 minutes and I will read four: how to change productivity estimates by inverting the question Applied Cognitive Psychology, 25 (2), 314-323 DOI: 10.1002/acp.1693

How mixing work incentives put us on the horns of a dilemma

To encourage collaboration, many organisations structure incentives so that whole groups are rewarded – or not - based on their collective output. However, the groups-eye view allows for social loafing, where people shirk duties and assume team-mates will carry their load, so it's tempting to keep everyone accountable by adding incentives to individual performance too. Christopher Barnes and his colleagues set out to see just how these mixed incentives turn out in practice.

The researchers used a computer warfare simulation that examines behaviour in tight, demanding circumstances, where teams of four protect their territories by correctly identifying enemy intruders and then quickly destroying them. Team-mates used separate monitors, but shared a room and could freely converse. They recruited 304 management undergraduates, half of whom were given straightforward group incentives:  $10 each if their group outperformed a specified rival group.

The other teams were given mixed incentives: group performance could lead to $5 each , and individually outdoing a specified member of another team garnered another $5. Participants who were individually incentivised were hungrier for scores, being significantly faster at destroying intruders. However, heavily penalised illegitimate attacks ('friendly fire') were more common in these teams. This slump in quality suggests a drop-off in the flow of information typical in close teams, making it harder to detect and ward off errors as attention was turned towards delivering immediate personal objectives.

The study also examined direct helping behaviour, in terms of the efforts made to destroy intruders in team-mate territory rather than your own. This mattered, as each team had a high workload member who was constantly swarmed with as many radar blips as the others had put together. Participants with pure group-level incentives showed more helping behaviours than their mixed incentive counterparts.

Barnes and his colleagues suggest that mixed incentives  present a conflict between maximising individual interests and that of the collective, and the temptation is to focus on your own priorities, letting others hold the fort for you. Moreover, if you doubt that they will, you'd be even more of a sucker to vainly do so yourself. This amounts to a social dilemma akin to the prisoner's dilemma, which pressurises players towards self-serving behaviours.

I felt - and the authors do note - that the experimental paradigm relates best to 'task forces' whose urgent tasks necessitate trade-offs between different behaviours. I'm skeptical about generalising to workplaces which are more elastic: I may forgo reading my book over lunch in order to help you out, feel rewarded by this, and spend the afternoon contributing just as much or more to my own goals. Nevertheless, by plugging social dilemmas in to the research on incentives, this article highlights that tweaking incentives can result in tradeoffs, not simply the best of both worlds.

Barnes, C., Hollenbeck, J., Jundt, D., DeRue, D., & Harmon, S. (2010). Mixing Individual Incentives and Group Incentives: Best of Both Worlds or Social Dilemma? Journal of Management, 37 (6), 1611-1635 DOI: 10.1177/0149206309360845

Cynicism is bad for business

When someone we trust takes us for a ride, the bump back to earth is something we're unlikely to forget. But when we suspiciously reject an offer from someone else, we may never know what we've missed out on due to too little trust. Over time, such asymmetries in feedback can tip us toward an unwarranted cynical stance. It's clear that cynicism is as unhelpful a bias as naivety: it leads to guarded communication, reduced  sharing, and more self-serving biases, all of which may cause interactions to nosedive. A recent review by Chia-Jung Tsay and his team from Harvard Business School may help us understand cynicism and how it develops.

The review identifies some key triggers that enhance cynicism, including:

• Being new to negotiation - novices are more likely to believe that negotiation is always competitive;
• Thinking about the power of influence; for instance, knowledge that another party is a sales expert leads negotiators to suspect their offers more;
• Inclusion of a shady character - negotiating groups take the least trustworthy individual in the other group as the best indicator of group trustworthiness;
• Clear power asymmetries - people expect more misrepresentations from authorities with access to hidden information.

The authors point to a range of studies where participants reject offers that are in their rational best interest because of lurking cynicism that puts them off the whole venture. They warn us that the consequence is that "cynicism regarding others' motivations may become a self-fulfilling prophecy that leaves both sides worse off than would otherwise be the case." Happily, the review concludes with some advice we might take on to chart a better course:

• perspective-taking to recognise your 'opponent' is an active party in negotiations, cultivating a "healthy skepticism" that considers a full range of motives on their part;
• act with integrity - it increases the likelihood the other party will;
• encourage a level playing field that minimises hidden information;
• foster repeated exposure to specific negotiators to build a history of trust that is costly to undermine.

Try the techniques out, you won't regret it. Trust me.

Tsay, C., Shu, L., & Bazerman, M. (2011). Naïveté and Cynicism in Negotiations and Other Competitive Contexts The Academy of Management Annals, 5 (1), 495-518 DOI: 10.1080/19416520.2011.587283