Consumers, Seller-Advisors, and the Psychology of Trust
Consumers, Seller-Advisors, and the Psycholog y of Trust
Justin Sevier 0 1 2 3
0 Part of the Commercial Law Commons, Consumer Protection Law Commons, Law and Psychology Commons, and the Law and Society Commons
1 Kelli Alces Williams Florida State University College of Law , USA
2 Florida State University College of Law , USA
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JUSTIN SEVIER* KELLI ALCES WILLIAMS**
Abstract: Every day, consumers ask sellers for advice. Because they do not or
cannot know better, consumers rely on that advice in making financial
decisions of varying significance. Sellers, motivated by strong and often
conflitcing self-interests, are well-positioned to lead consumers to make decisions that
are profitable for sellers and maybe harmful to the consumers themselves.
Short of imposing fraud liability in extreme situations, the law neither protects
the trust consumers place in “seller-advisors,” nor alerts them to the incentives
motivating the advice that sellers give. This Artliec makes several
contributions to the literature. First, it identifies and defines the selle-radvisor. Sellers
and advisors are usually regarded separately by the law;therefore, consumers
interacting with them are protected by different rules. As a result, a falsei- d
chotomy has arisen between (
) a doctrine of caveat emptor, subject to liabl-i
ity for fraud and applying to consumers interacting with sellers, and (
fiudciary duties protecting consumers interacting with advisors. This Article is the
first attempt to study consumer trust in the many common transactions that
fall somewhere in the space between. Second, in reporting the results of an
original psychology experiment, this Article offers empirical evidence of how
consumers’ decision making is influenced by the trust they place in s-eller
advisors. Finally, it explores how consumer trust in sellera-dvisors arises and
how it can be manipulated in an effort to understand how legal policy should
respond to both the ubiquity of sellera-dvisors and the consequences of
consumer reliance on, and vulnerability to, their advice.
“Trust (n): reliance on the integrity, strength, ability, surety, etc., of a
person or thing; confidence.”1
© 2018, Justin Sevier & Kelli Alces Williams. All rights reserved.
* Charles W. Ehrhardt Professor of Litigation at Florida State University College of Law.
** Loula Fuller and Dan Myers Professor at Florida State University College of Law.
The authors would like to thank Shawn Bayern, Brian Galle, Mark Spottswood, participants
in the Florida State University College of Law Faculty Enrichment Workshop Series, and
members of the Yale University Department of Psychology for helpful oral and written comments with
respect to the contents of this Article. We also thank Constantine Christakis and Taylor Westfall
for their excellent research assistance.
When University of Central Arkansas history professor Kim
(“Little”) noticed an unusual growth below her eye in 2012, she made a
routine appointment to see her primary care physicia2nA.fter examining the
skin on her right cheek, the primary care physician assured Little that it was
a blemish that would disappear within a few d3ayIsn. an unrelated
appointment with a local dermatologist, however, an alert physician assistant
noticed the white bump and, after running additional tests, determined that
the growth was a cancerous basal cell carcinoma.4
Although basal cell carcinoma is the least dangerous form of skin
cancer, the doctors informed Little that the growthshould be removed.5 She was
faced with two choices for removing the malignant lesion: (
) the traditional
procedure for removing the growth either by incision or by freezing thee- l
sion; or (
) the more innovative and (unbeknownst to Little) vastly more
xepensive “Mohs technique” procedure, which typically removes less skin
tissue when removing the growth.6 When Little asked her dermatologist for his
recommendation, he insisted onusing the Mohs technique, which he would
perform.7 When Little expressed doubt that the Mohs techniquewas
necessary, the dermatologist stated that it was the only procedure available because
of the proximity of the lesion to Little’s eye.8 The dermatologist assured Little
that the outpatient surgery would be minor, and that she would leave with just
“a couple of stitches” when the procedure was complete.9
Little reluctantly agreed to the dermatologist’s recommendatio1n0.A
few weeks later, Little traveled thirty miles to Little Rock, Arkansas, where
the dermatologist performed thethirty-minute procedure.11 He declined,
however, to sew up the area on her chee1k2.Instead, he directed her to a
plastic surgeon located across the street.13 When Little protested again,
stating that she did not need a plastic surgeon and that she was unconcerned
about having a small scar on her cheek, her dermatologist informed her that
she had no choice1.4 He assured her, however, that the plastic surgeon’s
work would be quick and minimally invasive.15
When Little crossed the street to the plastic surgeon’s office, she was
greeted by several nurses who took her clothes and inserted an IV into her
arm, as well as an anesthesiologist who was waiting to sedate her for the
procedure in the oculoplastic surgery center’s operating room.16 She left the
operating room with over twodozen stitches and was sick for several days
from the IV fluids used during the unwanted procedure.17
When the bill arrived for her relatively minor medical issue, Little was
furious.18 Because the Mohs technique involved three different highly-paid
specialists—a dermatologist, an anesthesiologist, and an ophthalmologist
trained in plastic surgery—and was performed on the grounds of a large
hospital instead of at an outpatient clinic, Little was charged over $26,000
for what was essentially minor surgery.19 She was charged nearly $2,000 for
13 Id. This appears to be an unusual protocol on the part of the dermatologistS.ee The Mohs
Procedure, AM. COLL. MOHS SURGERY,
https://www.skincancermohssurgery.org/about-mohssurgery/the-mohs-procedure [https://perma.cc/4JMK-Z386]. The American College of
MohsSurgery website specifies: “When . . surgery is complete, [the] Mohs surgeon assesses the wound
and discusses [the patient’s] options for ideal functional and cosmetic reconstruction.. . . If
reconstruction is necessary, the Mohs surgeon usually repairs the area the same day as the tumoer-r
moval.” Id. (emphasis added).
14 Rosenthal, supra note 2.
16 Id. This also appears to be a deviation from the typical procedure for Mohs surgerSye.e
The Mohs Procedure, supra note 13 (“[Patients] receivelocal anesthesia around the area of the
tumor, so [patients] are awake during the entire procedure. The use of local anesthesia versus
general anesthesia provides numerous benefits, including preventing a lengthy recovery and
possible side effects from general anesthesia.”) (emphasis added).
17 Rosenthal, supra note 2.
19 Id. BCC is the most common form of skin cancer, but it is also the least serious form (and
the form that generally responds best to minimalliyn-vasive treatment) according to physicians.
See BCC, supra note 4 ( “BCC almost never spreads (metastasizes) beyond the original tumor site.
the Mohs technique itself, nearly $15,000 for the plastic surgeon to sew up
the wound, $1,000 for the anesthesiologist, and nearly $9,000 for the use of
the hospital’s facilities.20
At the time of her scheduled follow-up examination, Little opted not to
return to the dermatologist who performed her procedure.21 She instead
visited a physician at the University of Arkansas Medical Center. The physician
suggested that she had been ovetrr-eated and that a less extensive, cheaper
process would have been equally effective2.2 Little, still furious at what she
viewed as a breach of trust by her dermatologist, later told the New York
Times, “I have an IV in my arm and a hole in my face that [the dermatologist]
refused to stitch. And theanesthesiologist is standing there with his mask
on.”23 She further noted that the dermatologist’s incision “was no bigger than
many cuts that heal on their own, and it definitely could have been repaired
by one doctor, but at that point what was I going to do?”24
The dermatologist who treated Little is an example of a
“selleradvisor.” This Article defines seller-advisors as hybrid actors in commercial
transactions who (
) give advice to consumers, (
) often have an su-ndi
closed financial incentive to make certain recommendations to the
consumer, and (
) fall generally outside the scope of fiduciary duty laws
whicherquire a person in a relationship of trust and confidence with another to act
solely in that other person’s best interest.25
Seller-advisors are everywhere. Any time a consumer is interested in a
product about which she is not an expert, she may rely on sellersof that
product for advice about whether that product is appropriate fohrer, what
model would fit the consumer’s needs best, and how to use the product to
the consumer’s advantage. Many daily transactions ranging widely in gs-i
nificance and complexity involve an interaction between a consumer and a
seller-advisor. Because of the sensitive nature of the transaction with the
seller-advisor—and because of the opaque nature of the se-laldevrisor’s
independent financial incentive—a problematic mismatch can develop
ebtween the expectations of the consumer and the behavior of the - seller
advisor: the consumer may mistakenly believe that her expectations of trust
and confidence with a seller-advisor are legally protected or even
practically justified, and may be unaware that the seller-advisor has no legal duty to
act in her best interes2t6. This mismatch hasmyriad implications for the
ways lawmakers think about fiduciary duty law in the commercial context,
the role of consumer protection laws with respect to transactions involving
seller-advisors, and the ways in which consumers can be taught, irrespective
of changes to existing law or policy, to tem ptheerir trust in the sell-er
advisor by employing a healthy dose of skepticism.
To that end, this Article reports the results from an original psychology
experiment that we conducted, which examines consumer attitudes toward
seller-advisors in a variety of ocmmonplace financial transactions. In the
experiment—which we report in two part—swe manipulated the nature of
the financial transaction to which consumers were exposed, the stakes of the
transaction, the presence or absence of a seller-advisor, and the obviousness
of the seller-advisor’s financial incentive for making certain
recommendations to consumers.27
Our experiment revealed several important conclusions that should ni
terest legal policymakers. First, consumers imbue se-alldevrisors—even
seller-advisors who are stereotypically viewed as having an obvious
finnacial self-interest, such as car salespeople—with a significant degree of trust
and confidence, regardless of the nature of the financial transaction28.
Second, although high stakes transactions tend to make consumers more
cnoservative (and less trusting of selle-ardvisors), we found a much stronger
influence from the seller-advisor on consumers’ financial decision2s9. In
other words, the mere presence of a selle-radvisor caused consumers in our
study to more often choose the option that was more financially risky and
26 See infra notes 83–99 and accompanying text.
27 See infra notes 176–184, 227–230 and accompanying text.
28 See infra notes 209–223 and accompanying text; see also Brad Tuttle, Car Shoppers’
Decisions Most Influenced by .. . Person Trying to Sell Them Cars?T,IME (June 5, 2012), http/:/
business.time.com/2012/06/05/car-shoppers-decisions-most-influenced-by-person-trying-to-sellthem-cars/ [https://perma.cc/4L47-2J6N] (describing the results of a survey finding that car buyers
are most influenced by the advice of a salesperson, despite the salesperson’s “obvious self-interest
in how that decision plays out”).
29 See infra notes 209–210 and accompanying text.
which conferred a greater financial benefit on theseller-advisor.30 Finally,
through a series of statistical tests, we attribute this “mere presence” effect
of the seller-advisor on consumers’ financial choices explicitly to the trust
and confidence that consumers conferred onto the seller-advisor.31
This Article makes several contributions to the literature. First, it
identifies and defines the seller-advisor. Sellers and advisors are usually
regarded separately by the law, and consumers interacting with them are protected
by different rules.32 As a result of the false dichotomy between sellers and
advisors, neither the doctrine of caveat emptornor fiduciary duties fully
protect consumers interacting with seller-advisors.33 This Article is the first
attempt to study the many common transactions that fall somewhere in the
space between. Second, in reporting the results of an original psychology
experiment, this Article offers empirical evidence of how consumers’
decision making is influenced by the trust they place in seller-advisors. Finally,
it explores how consumer trust inseller-advisors arises and how it can be
manipulated in an effort to understand how legal policy should respond to
both the ubiquity of seller-advisors and the consequences of consumer
reilance on, and vulnerability to, their advice.
This Article proceeds in several parts. Part I outlines the manner in
which the law incorporates psychological and philosophical theories of
trust—for example, through the common law of fiduciary duty and fraud,
and through legislative enactments including consumer protectiolnaws—
and explains how seller-advisors slip through the cracks of these judicial
and legislative protections.34 Part II outlines the philosophical and
psychological research on trust, and explains how consumers may view s-eller
advisors in light of this research.35 Parts III and IV test our assertions in an
original experiment, which we report in detail3.6 Part V explores the
impli30 See infra notes 209–210 and accompanying text.
31 See infra notes 216–218 and accompanying text.
32 See infra notes 100–129 and accompanying text.
33 See infra notes 50–99 and accompanying text; see also Michelle Oberman, Sex, Lies and
the Duty to Disclose,47 ARIZ. L. REV. 871, 884 (2005) (“The displacement of caveat emptor by
fairness-based justifications for a duty to disclose is perhaps most readily observed in the law
governing confidential relationship—srelationships in which the parties, by definition, operate
closer than at arm’s-length.”); Kathleen McNamara Tomcho, Commercial Real Estate Buyer
Beware: Sellers May Have the Right to Remain Silen,t70 S. CAL. L. REV. 1571, 1582 (1997)
(contrasting relationships in which the doctrine of caveat emptor applies with fiduciary relationships
where “the law imposes duties of honesty and full disclosure among . . . parties in accordance with
the nature of the relationship and the parties’ expectations”).
34 See infra notes 38–129 and accompanying text.
35 See infra notes 130–166 and accompanying text.
36 See infra notes 167–245 and accompanying text.
cations of these findings, their limitations, and future directions for
consumer and business law.37
I. THE LAW PROMOTING TRUST
Trust is widely believed to be necessary for most social
interactions,nicluding those that take place on various nons-ocial markets.38 Trust is an
important component of non-simultaneous exchanges, for example, and
wiedspread distrust would undermine market participation and may drive even
trustworthy market participants out of business3.9 Consumers must make
decisions about how and whether to proceed with an exchange quickly,and
often have very little information to guide their cho4i0ceTs.hese exchange
transactions that might seem to implicate trust the most must be conducted
when the consumer lacks sufficient information to determine whether her
exchange partner is trustworthy.41 It might take years to develop enough
information about a particular merchant to fele confident about trusting that
seller.42 Decisions to distrust sellers are also often made quickly, but may not be
Policymakers have endeavored to protect consumers and sellers from
the risks each face, such that the other will behave opportunistically. Typical
buyer-seller relationships are governed by laws prohibiting fraud and
sumer protection regulations prohibiting deceptive practices.44 In some
situations, where one party is vulnerable to the other’sjudgment or advice, the
law imposes fiduciary duties that prohibit conflicted interests on the part of
the more sophisticated actor4.5 But there are circumstances where a truly
unsophisticated buyer or investor must engage in a transaction with and
seek advice from a seller with whom they deal at arm’s len,gatnhd who
does not owe them fiduciary dutie4s6. In such circumstances, a buyer is
seeking advice from the very party whose interests are adverse to their own
without seeking advice from any independent third parties. We refer to
sellers in these situations as seller-advisors.
Seller-advisors do not owe fiduciary dutiesto consumers and, as they
are only giving their opinion about what may be best for the buyer, are not
likely to run afoul of ant-ifraud regulations. Consumers who rely on
selleradvisors are vulnerable not only in the moment of the financial transaction,
but also in their inability to recover for injury caused by heeding the selle-r
advisor’s advice. We have focused our study on buyers dealingwith
selleradvisors in an effort to determine how likely buyers are to trust - seller
advisors and whether and when that trust leads to taking the seller-advisor’s
In this Part of the Article, we consider the legal rules available to
byuers and selers.47 We focus on protections offered to buyers and consider
when those protections are most effective to help unsophisticated buyers
dealing with sophisticated sellers. Finally, we show how buyers who rely on
seller-advisors are stuck in an awkward placweithout specific regulatory
protection. In such circumstances, contracting parties may have to rely on
trust to enter transactions with one another. The next Part considers whether
trust is realistically available to facilitate these transactions48 before we turn
to the results of our study to reveal what we have learned about the role of
trust in transactions between consumers and seller-advisors.49
44 Honorable Shelden Gardner & Robert Kuehl,Acquiring an Historical Understanding of
Duties to Disclose, Fraud, and Warranties, 104 COM. L.J. 168, 185 (1999) (describing how
consumer protection statutes were enacted to protect against “inequitable and deceptive trade
practcies” that do not meet the requirements of common-law fraud).
45 Frankel, Fiduciary Law, supra note 25, at 1291.
46 John F. Mariani et al.U,nderstanding Fiduciary Duty,FLA. B.J., Mar. 2010, at20, 25
(“[A]n arm’s length business transactiondoes not create a fiduciary relationship. This is so even
when one party has superior bargaining power.”).
47 See infra notes 50–129 and accompanying text.
48 See infra notes 130–272 and accompanying text.
49 See infra notes 280–245 and accompanying text.
A. The Law Forbids Deception
The law protecting consumers from deception often grows from
notions of what information buyers and sellers must share with each other in
an arm’s length transaction. The doctrine of caveat emptor, or “buyere-b
ware,” places responsibility with buyers for making specific inquiries of a
seller.50 As long as the seller answers honestly, the buyer has no recourse
for harm resulting from a lack of informatio51n.Fraud prohibits material
misstatements given with an intent to deceive in response to such inquiries
from buyers.52 The seller may have information about the product to be sold
that would be valuable to the buyer and would change the buyer’s
estaimtion of how much to pay for the purchase, but the seller is entitled to whi-t
hold that information.53 Sellers may drive a hard bargain and profit
genreously from their informational advantage alsong as they do not deceive
buyers.54 Allowing buyers and sellers to take advantage of superior inrf-o
mation encourages investment in information and helps products move to
whomever values them most.55
In order to establish a case for fraud, a plaintiff mustdemonstrate that
four elements are present.56 First, there must have been a misrepresentation
of fact.57 An opinion or overstated puffery will not support a fraud claim5.8
50 Alex M. Johnson, Jr., An Economic Analysis of the Duty to Disclose Information: Lessons
Learned from the Caveat Emptor Doctrine, 45 SAN DIEGO L. REV. 79, 101–03 (2008) (discussing
the meaning and historical context of the doctrine). The caveat emptor doctrine, or “let the buyer
beware,” is often interpreted incorrectly, with its converse taking hold as the correct meaning.See
id. at 93 (“[T]he caveat emptor rule, . . in its purest form, requires that the seller say nothing to
the buyer with respect to the condition of the premises sold.”).
51 Id. at 93–94 (illustrating a buyer’s lack of legal recourse in the absence of “active
concealment” or misrepresentation).
52 BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 579 (1996) (holding that “actionable fraud
requires a material misrepresentation or omission,” which includes “deliberate false statements,
acts of affirmative misconduct, or concealment of evidence of improper motive”).
53 Johnson, supra note 50, at 104 (“[T]he caveat emptor doctrine is or at least began as a rule
of silence. If the seller remains silent and takes no steps to warrant the condition or quality of the
premises, caveat emptor provides a safe harbor for the seller.”).
54 Id. at 103.
55 See Jeffrey L. Harrison, Rethinking Mistake and Nondisclosure in Contract Law, 17GEO.
MASON L. REV. 335, 336 (2010) (“[T]he basic idea is that the common law generally permits the
party who has invested in developing or gathering information to internalize the gains those efforts
56 A typical statement of the elements of a cause of action for fraud is as follows:
One who fraudulently makes a misrepresentation of fact, opinion, intention or law
for the purpose of inducing another to act or to refrain from action in reliance upon
it, is subject to liability to the other in deceit for pecuniary loss caused to him by his
justifiable reliance upon the misrepresentation.
RESTATEMENT (SECOND) OF TORTS § 525 (AM. LAW INST. 1977).
The misrepresented fact must be material to the plaintiff’s decision to agree
to the transaction.59 Ancillary facts that are not a proximate cause of the
decision to complete the transaction will not lead to liability for fr6a0ud.
Second, a plaintiff must show that the defendant acted with scienter, or the
intent to deceive.61 Innocent or negligent misrepresentations do not
consittute fraud.62 This state of mind requirement is particularly difficult for
plaintiffs to meet, as mens reais usually difficult to prove.63 Third, a
plaintiff must have relied on the misstatement in deciding to completethe
transaction.64 The reliance requirement is related to materiality in that both
elements concern whether the plaintiff would have agreed to the transaction
but for the misstatement6.5 Fourth, a plaintiff must suffer damages on
cacount of the fraudulent statement.66 There is generally no cause of action for
fraud where a plaintiff is tricked into paying fair market value for
valueerceived.67 The result of these limitations on fraud liability is that therree a
many transactions in which an unsophisticated consumer may be taken
advantage of and unable to obtain a remedyby appeal to fraud alone. Fraud
liability will not stop or even discourage many practices that canharm
consumers and undermine faith in the market.
The limitations of fraud liability led tocauses of action for negligent
misrepresentation and the promulgation of consumer protection statutes.68 A
party may be liable for negligent misrepresentation in business transactions
where one party is more knowledgeable than the other and the more
knowledgeable party was careless in a way that harmed the less knowledgeable
party.69 This liability could apply to any salesperson who knows more about
58 Gardner & Kuehl, supra note 44, at 182 (“The puffery doctrine is a defense asserting that
some forward-looking statements are so amorphous as to not affect the price of a security.
Accordingly, they are not material under a fraud analysis.”).
59 RESTATEMENT (SECOND) OF TORTS § 525.
60 Id. § 538.
61 Id. §§ 525–526.
62 PETER A. ALCES, LAW OF FRAUDULENT TRANSACTIONS § 2:13 (2015) (“The plaintiff must
show . . . that the defendant was aware of the falsity.”).
63 See Gardner & Kuehl, supra note 44, at 188.
64 RESTATEMENT (SECOND) OF TORTS § 537.
65 Id. § 538.
66 Id. § 525.
67 Id. § 549 (explaining that damages for fraud may be based on either the difference between
the value and purchase price, or other pecuniary losses suffered).
68 See Johnson, supra note 50, at 104 (discussing how “once the seller begins to speak[,] . .
even short of fraud, courts are willing to impose a duty on the seller to be truthful and nonnei-gl
gent with respect to those representations”).
69 See ALCES, supra note 62, § 2:3. The basic elements of a negligent misrepresentation claim
as outlined by the Supreme Court of Washington are as follows:
) [T]he defendant supplied information for the guidance of others in their business
transactions that was false; (
) the defendant knew or should have known that the
inthe product they are selling than the consumer, if the consumer relies on the
salesperson for guidance (as they often do). It would seem to address much
of the ground covered by consumer protection statutes. In today’s complex
market of goods and services, consumers cannot possibly understand
everything they are buying as well as the companies selling them70 .They often
rely on those companies for knowledge and guidance. That reliance exposes
companies and their sales associates, or others whocommunicate with
potential customers, to liability for negligent misrepresentation if the
consumer is misled at all.71
Consumer protection stat utes build on the promise and premises of
fraud and negligent misrepresentation liability to outlaw deceptive devices
and practices, and require full, truthful disclosures in enumerated
circmustances.72 Negligent misrepresentation liabilitydoes not reach material
omissions, and fraud doctrine only provides for liability where there is a
duty to disclose particular information7.3 Neither doctrine remedies or
prevents sharp practices where only accurate information is shared with
cnosumers, but it is shared in a piecemeal manner not designed to help the
consumer make the best decision. States and the federal government have
mandated disclosure in certain circumstances to respond to those shmor-tco
ings.74 Mandatory disclosure has resulted in longboilerplate contracts that
are impractical for consumers to read or understand7.5 Over-disclosure may
prove more harmful than unde-drisclosure because in both instances, the
consumer remains ignorant—the consumer who has received a tome
ofniformation that they do not read, for instance, may assume they are somehow
protected by the provision of that information.76 The false sense of security
formation was supplied to guide the plaintiff in his business transactions; (
defendant was negligent in obtaining or communicating the false information; (
plaintiff relied on the false information; (
) the plaintiff’s reliance was reasonable;
) the false information proximately caused the plaintiff damages.
Id.; see also RESTATEMENT (SECOND) OF TORTS § 552(
) (stating the elements to establish
liability for “information negligently supplied for the guidance of others”).
70 See Mascarenhas et al., supra note 40, at 68 (describing the concept of “information
asymmetry” and the fact that “marketers know more about their products and services than prospective
71 Johnson, supra note 50, at 104–11 (discussing the doctrine of negligent misrepresentation
and the ways in which sellers may be held liable for statements made to consumers).
72 Gardner & Kuehl, supra note 44, at 185.
73 See Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 152–54 (1972) (holding
that an omission can form the basis of securities fraud, and the requirement of reliance is met
when there is a failure to fulfill a duty to disclose).
74 BEN-SHAHAR & SCHNEIDER, supra note 40, at 4–7.
75 Id. at 6–7.
76 Id. at 11–12.
may keep the consumerfrom asking more questions or approaching the
transaction with self-protective skepticism.77
Consumer protection statutes go beyond mandatory disclosure
andattempt to directly address deceptive practices more broadly, targeting sales
tactics that might mislead consumers even if they are not technically
fraudulent.78 Flexibility around those standards and the ability to intervene
to provide remedies forstrategically misled consumers makes consumer
protection regimes more responsive to consumer injuries.79 The streamlined
administrative process for lodging complaints and determining consumer
remedies also makes the consumer protection system more accessible and
less expensive than litigation.80
Fraud, negligent misrepresentation, and consumer protection laws
operate to provide an honest environment in which consumers can transact biu-s
ness with sellers who may be more knowledgeable about the transaction. The
effect of the laws is to prevent relatively unsophisticated consumers from
being directly deceived or taken advantage of in ways they cannot otherwise
prevent or anticipate.81 These laws cannot, however, completely protect
consumers from their own ignorance. Even if sellers are completely honest and
faithfully follow disclosure laws, consumers will often find themselves at a
disadvantage in any number of transactio,nsperhaps never moreso than
when a consumer delegates control over a sensitive personal matter to
anohter. The next Section considers how the law protects these particularly
B. The Law Protects Some Expectations and Vulnerabilities
When a consumer wants to buy a toaster or a car, she is expected to
nuderstand what the product is and to know what her preferences are for a
product of that kind. A particular seller may not misrepresent the characteristics of
a particular good. Beyond that obligation, however, the seller is free to profit
from the consumer’s lack of knowledge about the product or even about the
degree to which a particular product meets her needs or desires.83
But when a person enlists someone’s professional advice or delegates
control over her property or some sensitive decision making to a professional,
the law imposes fiduciary duties to govern those relationship8s4. Fiduciaries
owe duties of loyalty and care.85 In some circumstances, fiduciaries may owe
a duty referred to as “prudence8,6” while in others, a duty of disclosure is
claimed.87 While many non-fiduciary actors are subject to a duty of care
particular to their circumstances, the duties of loyalty and prudence are unique to
fiduciary relationships.88 A fiduciary duty of loyalty requires at least that the
fiduciary abstain from acting on interests that conflict with those of the
beneficiary.89 A duty of prudence refers to the “prudent man rule” and applies in
trust situations, requiring a trustee to administer the trust andeither invest or
hold its assets with the same degree of care and skill a prudenpterson would
exercise in the administration of their own affairs.90
Fiduciary principles are designed to protect parties who rely on the
judgment and discretion of others in controlling property,making sensitive,
personal decisions, or agreeing to contracts.91 Most scholars agree that
fiduciary duties exist to force the alignment of the fiduciary’s interests with
those of the beneficiary, and therebyto allow the kinds of transactions in
which fiduciaries are enlisted to be completed9.2 Relatively unsophisticated
or vulnerable parties may stay out of given markets altogether, may be kept
from robust participation in society or hampered in their accumulation of
wealth if they are unable to rely on fiduciaries to navigate areas in which
they lack the time and expertise to act for themselves.
Fiduciary law allows courts to review a relationship after a problem
has occurred to determine to what extent and in what way a fiduciary acted
inappropriately.93 This somewhat flexible ex post review is necessarye-b
cause beneficiaries lack the time and expertise to monitor fiduciaries closely
and lack the expertise necessary to write detailed contracts about how
fiudciaries are to exercise discretion9.4 In order to trulytake advantage of the
fiduciary’s greater sophistication and expertise, the beneficiary must allow
the fiduciary to exercise discretion as she sees fit, subject only to the ere-l
vant duty of care and the duty of loyalty.95 Attempts to micromanage a
fiduciary would undermine the purpose and benefits of the relationship.96
Relationships designed for the provision of advice are often classified
as fiduciary to ensure that advice about what is best for a beneficiary is just
that—best for the beneficiary.97 But sellers at arm’s length are not
fiduciaries and the advice they give consumers may well be based on what is best
for the seller.98 We now consider consumer interactions with these sellers
who are also called upon to give advice.99
92 See Frank H. Easterbrook & Daniel R. FischelC,ontract and Fiduciary Duty, 36J.L. &
ECON. 425, 425 (1993). “Contractarian” scholars argue that fiduciary duties fill gaps in the
parties’ contract in a manner consistent with an expectation that the fiduciary be bound by fiduciary
obligations of loyalty and care. See id. (“The duty of loyalty, coupled with restitution of any gain
the trustee obtains by favoring his own interest, defines a special relation.”). “An-tciontractarian”
scholars view fiduciary relationships as being relationships of trust that rise above typical
contractual rules and practices. See Larry E. Ribstein, Law v. Trust, 81 B.U. L. REV. 553, 555 n.6 (2001).
They agree with contractarians, however, that the purpose of imposing fiduciary duties is to ensure
that the fiduciary acts in a manner consistent with the best interests of the beneficiary. Frankel,
Fiduciary Duties, supra note 87, at 1211–12, 1229 (“The ‘goodness’ expected of fiduciaries
consists of refraining from taking what is not theirs, without permission.”).
93 Ribstein, supra note 88, at 216.
94 Frankel, Fiduciary Law, supra note 25, at 1296.
95 Id. at 1293.
96 See id. (“[I]t is in the interest of society that non-experts use fiduciaries’ services and avoid
wasteful duplication of these services.”).
97 See Smith, supra note 91, at 1409 (“In the fiduciary context, the duty of loyalty requires the
fiduciary to adjust her behavior on an ongoing basis to avoid sel-finterested behavior that wrongs
98 See Mariani et al., supra note 46, at 25.
99 See infra notes 100–129 and accompanying text.
C. The No-Law’s Land of Seller-Advisor Transactions
Seller-advisors are sellers of products who may provide advice to
consumers about whether to buy the seller’s product or under what terms to do
business with the seller.100 When sellers offer particularly complex products
or present their customers with a number of choices that may be beyond
most consumers’ experiences, consumers will ask for advice. Pure advisors
are typically considered fiduciaries because giving advice requires one to
consider the best interests of the recipient of the ad1v0i1ceT. hat advice
would not be valuable if the advisor allowed her personal interests to
intrefere or determine the nature of the advice. Pure sellers are emphatically not
fiduciaries.102 They pursue self-interest in trying to convince as many
consumers as possible to buy their products at the highest price the market will
bear. Seller-advisors are often compensated in ways that reward them for
up-selling consumers or convincing consumers to buy more of a product
than they may need. Those interests are obvious to consumers in some
contexts and completely opaque in others.
Seller-advisors enjoy the most power when they sell complex products
that consumers need help understandin,gwhen products are expensive,or
when the productotherwise presenst significant decisio-nmaking
miportance.103 On a small scale, a waiter in a restaurant is a selle-radvisor, but a
much more powerful seller-advisor is a surgeon or a mortgage broker.
Consumers need advice to navigate more complex markets,and the more money
or welfare on the line, the more afraid they will be of making the wrong
choice. While we found that consumers do not always defer to advice under
such circumstances, they are more cautious and less comfortable making
edcisions they do not understand.104 In the face of this vulnerability, individual
seller-advisors may be able to have the most influence.
More complex products are not only difficult to understand, but the
markets in which they are offered are sufficiently complex that consumers
will not always understand the incentives the sel-laedrvisor has that may
motivate the advice they give. Many mortgage borrowers likely have no
idea how the mortgage lender representative or broker is paid.Patients may
not know how doctors are paid or even whaatlternatives a doctor may
consider and discard along the way to giving advice. Whciloensumers might
100 See supra note 25 and accompanying text.
101 See Frankel, Fiduciary Law, supra note 25; Smith, supra note 91.
102 See Mariani et al., supra note 46, at 25.
103 See Mascarenhas et al., supra note 40, at 72–73 (“Modern economies include many
activities like selling cars, houses, and electronic goods, where product quality and product attributes
are complex and sellers know far more about what they sell than buyers know about what they
104 See infra notes 207–208 and accompanying text.
understand that car salespeople work on commission,they do not necessarily
understand the other ways a dealership makes money or what components of
the price allow the dealership to extract gains from the sale of the car.
The complexity and opacity of a seller-advisor’s role in a sales
transaction can harm consumers. It can convince a consumer to make a substantial
purchase that causes him to suffer significant financial or other harm. It can
lead a consumer to act against his best interests, locking him into a decision
with long-term consequences he does not fully understand or appreciate.
Even at the beginning of the process, a lack of understanding of
thseelleradvisor’s incentives can prevent a consumer from asking the
questionrsequired to understand the purchase or transaction, leaving him irretrievably
under-informed about the decision at hand. In situations where a consumer
has to make a quick decision, such as when choosing the terms of a mt-or
gage loan, the consumer may defer to a seller-advisor whose interests
sharply conflict with his own because he does not have time to do otherwise. A
seller-advisor would not have to lie at all in order to leadcoansumer to
make a decision against his own interests, so fraud liability would not
portect such a consumer.105
Likewise, fiduciary liability would not be available to remedy the
injury suffered by a consumer led astray in most selle-radvisor relationships.106
Most sellers, whose interests are in having the consumer pay as much as
possible for as many goods or services as possible, definitionally cannot be
fiduciaries.107 A party that is primarily a seller of goods or services and who
operates through sales agents—whose job is to sell as many products for as
much money as possible—will not be considered a fiduciary and will not be
bound by fiduciary duties.108 Such sellers will not have to consider
theniterests of the consumer at all and can give advice that runs directly counter
to the consumer’s best interests as long as they do not commit fraud.
Fiduciary duties do not bind fiduciaries to capture perfectly the best
interests of a beneficiary. Even fiduciaries can be imperfect selle-radvisors in
some circumstances.109 Fiduciaries have to be paid for their services and so
in those negotiations act as sellers of their servi1c1e0s.Most fiduciaries,
however, are not primarily engaged in selling. They negotiate a price for the
fiduciary relationship and then go about doing their work on the consumer’s
105 See supra notes 50–82 and accompanying text.
106 See supra notes 83–99 and accompanying text.
107 See Mariani et al., supra note 46, at 25.
109 See Claire Moore Dickerson,From Behind the Looking Glass: Good Faith, Fiduciary
Duty & Permitted Harm, 22 FLA. ST. U. L. REV. 955, 971–72 (1995).
110 Frankel, Fiduciary Law, supra note 25, at 1294 (explaining that fiduciaries are entitled to
compensation for their services and if an entrustor does not have funds to compensate the
fiduciary, they may deem part of the assets to the fiduciary as payment).
behalf. Further, and perhaps most importantly, fiduciaries are always op-r
tected by something like a business judgment rule11.1 That is, as long as a
fiduciary’s advice is given in good faith and not the result of an undisclosed
conflict of interest, the advice does not have to be the best course of action
for the beneficiary—it does not have to be “right.”112 A variety of influences
may push the fiduciary to give advice contrary to the interests of the
beneficiary, but still not result in liability for breach of the duty of loyalty because
there were no direct conflictsof interest or the advice was given in good
faith and within the standard of care.113
An example of a fiduciary relationship that could be influenced by
unexpected interests is the doctor/patient relationship. Doctors are fiduciaries of
patients and are expected to avoid or disclose any financial interests they have
that would conflict with the patient’s interests in care.114 However, doctors are
not required to know everything about the conditions they treat and they are
not expected to know of or have access to all experimental or new treatments,
even those that relate to conditions they treat regularly.115 A doctor’s standard
of care simply does not require them to beall-knowing.116 Doctors are
therefore allowed and expected to skew their advice in favor of their experience. A
surgeon would not violate her fiduciary duties to her ipeantt if she
recommended surgery—even if another treatment would be as or moreeffective—
as long as surgery would not be inappropriate for the patient’s conditio11n7.
111 Douglas M. Branson, The Rule That Isn’t a Rule—The Business Judgment Rule, 36 VAL.
U. L. REV. 631, 632 (2002) (“[T]he business judgment rule acts as a presumption in favor of
corporate managers’ actions. . . . provid[ing] a safe harbor that makes both directors and their actions
unassailable if certain prerequisites have been met.”).
112 See Dickerson, supra note 109, at 959 (providing an example demonstrating that if a
transaction does not involve a conflict of interest, the transaction will be considered to have been
executed “in good faith”).
114 See Michelle Oberman, Mothers and Doctors’ Orders: Unmasking the Doctor’s Fiduciary
Role in Maternal-Fetal Conflicts, 94 NW. U. L. REV. 451, 455 (2000) (discussing the history of
the doctor-patient relationship and the notion of fiduciary relationships eventually applying to that
relationship). “In the course of this expansion, the fiduciary model was applied to the d-octor
patient relationship, and doctors and commentators, and later judges, came to refer to doctors as
115 Gerald J. Smoller, Standard of Care: “Reasonable Man” Doctrine, 44 CHI.-KENT L. REV.
107, 107 (1967) (explaining that though doctors have knowledge superior to an ordinary person
and must act in a manner that is reasonably “consistent with this higher knowledge,” they need not
116 Id. A doctor’s standard of care requires a doctor to “possessand apply the knowledge and
use the skill and care that is ordinarily used by reasonably wel-lqualified doctors in the locality in
which he practices or in similar localities in similar cases and circumstancesI.d”. (quoting ILL.
PATTERN JURY INSTRUCTIONS-CIVIL § 105.02 (1961), now located at § 105.01).
117 See Oberman, supra note 114, at 459 (explaining how, despite the terminology of
fiduciary duty being applied to physicians, the law generally does not enforce a physician’s fiduciary
Such a surgeon would have an obvious financial interest in recommending
surgery that may conflict with the patient’s interest in a minimally invasive
treatment.118 A patient may not be sensitive to the doctor’s interest or may
assume that the surgeon is giving equal weight to all available treatment
methods when making a final recommendation. Nothing in the law protects
the patient from his lack of understanding of the doctor’s incenvties or from
the doctor’s lack of knowledge of alternative treatments1.19 A patient’s
choices are simply to rely on thsiseller-advisor’s recommendation, conduct
research, or find another advisor who may make a different recommendation.
An example of a non-fiduciary in a sensitive seller-advisor position is
a stockbroker.120 Brokers, as opposed to investment advisors who do owe
fiduciary duties, must only be paid for making trades and any advice they
give is considered incidental to making the trade12.1 As such, brokers may
not charge for advice12.2 Instead of a fiduciary obligation, brokers have
simply been held to a “suitability” standard that requires them to rmec-o
mend only securities to their clients that are appropriate given the particular
client’s wishes and financial circumstances.123
In a sense, brokers are the car salesmen of the securities world. They
place orders for traders and may give information about securities, buitt is
generally known that they are working on commission.124 It is well known
118 See id. at 461 (“Malpractice law has yet to hold physicians liable for actions motivated by
financial conflicts of interest.”).
120 See Lynn Bai, Broker-Dealers, Institutional Investors, and Fiduciary Duty: Much Ado
About Nothing?, 5 WM. & MARY BUS. L. REV. 55, 57–58 (2014) (“Broke-rdealers generally do
not owe a fiduciary duty to their clients under federal law, but some courts have imposed a
fiduciary duty under limited circumstances when there is a special trust relationship or when a brok-er
dealer exercises control over trading activities of the client.”)T;homas Lee Hazen, Stock Broker
Fiduciary Duties and the Impact of the DoddF-rank Act, 15 N.C. BANKING INST. 47, 52 (2011)
(“[U]nder the Exchange Act, brok-edrealers are not subject to an explicit fiduciary standard
. . . .”). But see Dodd-Frank Wall Street Reform and Consumer Protection Act § 913(g)(
), Pub. L.
No. 111–203, 124 Stat. 1828 (2010) (codified as amended at 15 U.S.C. § 78o(k)(
(granting authority to the Securities Exchange Commissionto establish a fiduciary duty for brokers and
121 See Hazen, supra note 120, at 53 (“Moreover, because the representative was not giving
general investment advice, the absence of special compensation for the advice rendered the advice
incidental to his activities as a broker-dealer.”).
123 See FINRA R. 2111 (2014), http://finra.complinet.com/en/display/display.html?rbid=2403
(requiring that a broker-dealer or associated person “have a reasonable basis to believe that a
recommended transaction or investment strategy involving a security or securities is suitable for the
customer,” and identifying “three main obligations: reasonable-basis suitability, customer-specific
suitability, and quantitative suitability”); Hazen, supra note 120, at 52.
124 See Harlan Landes, Brokers Are Salespeople, Not Financial Advisor,sFORBES (July 11,
2012, 5:31 PM),
https://www.forbes.com/sites/moneybuilder/2012/07/11/brokers-are-salespeoplenot-financial-advisers/#4e2397133dc0 [https://perma.cc/6KCW-LXPA] (“Stockbrokers facing the
Second, we found a statistically significa—ntbut weaker—effect on
participants’ likelihood of choosing the more expensive option based onthe
stakes of the transaction. Specifically, participants were less likely to choose
the expensive option—that is, ex hibited greater conservatism—when the
stakes of the transaction were higher than when they were lowe2r0.7 Across
all financial scenarios, this conservatism effect reduced the likelihood of
participants choosing the more expensive option by roughtwlyenty-two
Finally, and most importantly, we found a statistically significant effect
on participants’ likelihood of choosing the sel-laedrvisor-preferred, more
expensive option, whenever a seller-advisor was present.209 Specifically, the
mere presence of the seller-advisor increased the likelihood that participants
would choose the option that theseller-advisor recommended by roughly
forty-three percent, and this effect was stronger than the conservative effect
exhibited with the degree of the stakes of the transaction.210
Notably the effect of theseller-advisor’s presence caused an increase
in participants’ likelihood of choosing the more expensive option in each
financial scenario, although the effect was not uniform. Thseeller-advisor
had a relatively small effect on participants’ choices in the house and car
purchase scenarios. The seller-advisor’s impact was stronger, however, in
the restaurant, surgery, and personal training scenarios. Indeed, the mere
presence of the seller-advisor caused a shift in overall preference in the
personal training scenario, away from a preference for the cheaper option and
toward a preference for the more expensive, seller-advisor-preferred option.
207 B = -0.25, SE = 0.15, Wald = 2.84, p = .092 (marginal), exponential(B) = 0.78 (odds ratio).
208 For example, in the surgery scenario, 57.8% of participants in the low stakes condition
elected to have the more expensive option (surgery). That percentage fellto 32.9% of participants
in the high stakes condition.
209 B = 0.36, SE = 0.15, Wald = 5.50, p = .019, exponential(B) = 1.43 (odds ratio).
210 For example, in the personal training scenario, participants chose the more expensive
training package just 33.9% of the time when they were not exposed to a sel-laedrvisor. In
contrast, 55% of participants exposed to a sell-eardvisor chose the selle-radvisor’s preferred, more
expensive, option. Participants chose the more expensive, selle-radvisor-preferred option by 10.4
points in the restaurant condition, 21.1 points in the trainer condition, 2.2 points in the car
condition, 0.3 points in the house condition, and 7 points in the surgery condition.
We next evaluated the role of perceived trust with respect to participants’
financial choices. To do so, we examined only participants who had been
exposed to a seller-advisor. Among these participants, we had several
hypotheses. First, we expected that people would generally trust theirseller-advisors,
perhaps on the mistaken assumption that theseller-advisors were looking out
for the interests of the participants. Second, although we had no specific
perdictions, we expected that people would not trust theseller-advisors equally
across all five financial scenarios. Third, we expected that high stakes
financial transactions would make our participants more conservative, and thee-r
fore less likely to trust theirseller-advisor, compared to low stakes financial
transactions. Finally, and most importantly, ewexpected that participants’
financial choices would be strongly and significantly associated with their
score on the trust index that we created in this experiment.
211 This Chart is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
Chart 2 illustrates the percentage of consumers who chose the expensive option in each financial
scenario. The left-side bar in each scenario represents the percentage of consumers who chose the
expensive option when they were not exposed to a selle-ardvisor. The right-side bar in each
scenario represents the percentage of consumers who chose the expensive option across all of the
experimental conditions in this study (that is, the conditions in which a seller-advisor was present).
Thus, the right-side bars indicate the percentage of participants who followed the selle-radvisor’s
recommendation. Above each scenario, we have included the sel-laedrvisor effect, which is an
increase in the percentage of consumers who chose the more expens-ivade,visosre-ller
To test these hypotheses, we first compared the mean trust ratings for
participants in our sample with the midpoint of the trust scale. Next, we
conducted a main effects analysis of co-variance (“ANCOVA”) in which we
) the type of transaction and stakes of the transaction as the
independent variables, (
) the perceived importance and complexity of the
transaction as covariates, and (
)the scores on the trust index as the
dependent variable. We then examined the bivariate correlation betweetnhe
participants’ choices and their trust in their seller-advisor.212
The results supported our hypotheses. The mean rating on our trust
index was 5.23 out of 7. A one-sample t-test revealed that this rating was
statistically different from the lowest point of the scale (12)13 and was
statistically different from the mid-point of the scale (
) as well.214 This indicates,
consistent with past literature on the psychology of trust, that participants
generally trusted their seller-advisor in the financial transaction to which
they were exposed.215
Additionally, as with participants’ financial choices, we found a strong
and significant effect on participants’ trust in theisreller-advisor based on
the type of transaction, such that the car salesman and the mortgage agent
were deemed less trustworthy than the agents in the other financial
scenairos.216 We also found a weaker, but statistically significant, effect on
participants’ trust in their selle-ardvisor based onthe stakes of the transaction,
such that participants viewed theseller-advisor in the high stakes condition
as less trustworthy than the seller-advisor in the low stakes condition.217
Finally, and most importantly, an examination of the bivariate
correlation between participants’ trust scores and their ultimate financial decision
revealed a moderately strong and statistically significant relationshipe- b
tween participants’ trust in the seller-advisor, across all scenarios, and their
likelihood of choosing the seller-advisor’s preferred option.218
In four of the five scenarios, the correlation between participants’ trust
in the seller-advisor and their willingness to choose the seller-advisor’s
pre218 Pearson’s r(550) = .29, p < .001.
212 Bivariate correlations range from negative one (a perfect negative relationship) to positive
one (a perfect positive relationship).See EARL BABBIE, THE PRACTICE OF SOCIAL RESEARCH
425–29 (14th ed. 2016). A bivariate correlation of zero indicates no relationship. Id.
213 M = 5.23, SD = 1.24. t(556) = 80.37, p < .001, Cohen’s d = 3.41. A one-sample t-test is a
parametric technique that “determines whether the sample mean is statistically different from a
known or hypothesized population mean.”SPSS Tutorials: One-Sample t-Test, KENT ST. U.
LIBRARIES, https://libguides.library.kent.edu/SPSS/OneSampletTest [https://perma.cc/6SLX-LSP6].
214 M = 5.23, SD = 1.24. t(556) = 23.38, p < .001, Cohen’s d = 0.99.
215 See supra notes 130–166 and accompanying text.
) = 47.41, p < .001, η2p = .26. The means for the level of trust vis-à-vis the
selleradvisor in each scenario are as follows:Mrestaurant = 5.95 (SE = 0.11), Mtrainer = 5.52 (SE = 0.11),
Mcar 2=174M.7l2ow(S=E5=.303.1(S0E), =M0ho.0us7e)=, M4.h1ig8h (=SE5.1=40(.S1E1),=M0s.0ur7ge)r,y F=(51.,8504(8S)E==4.03.61,1p).= .037, η2p = .01.
ferred option was moderate to strong2.19 Extrapolating from these bivariate
correlations, we also determined the percentage of the variance in people’s
financial choices that were explained through their trust in
tsheelilreradvisor. Participants’ level of trust in theirseller-advisor explained twenty
percent of their financial decision in the restaurant, house purchase, and
surgery scenarios. Trust levels accounted forten percent of the variance in
the car purchase scenario.220
In sum, the results from Part One of our study provide substantial
support for our hypotheses regarding the role of selle-radvisors and the role of
trust in consumers’ decisions across a spectrum of commonplace financial
scenarios. Consumers’ willingness to choose a more expensive financial
option versus a cheaper option vary widely across differing financial
sce219 In the restaurant scenario, the bivariate correlation was 0.47 (p < .001); in the car purchase
scenario, it was 0.3 (p = .001); in thenew house scenario, it was 0.46 p( < .001); in the surgery
scenario, it was 0.44 (p < .001). The trainer scenario was the only scenario in which the corrae-l
tion was unreliable p( = .195), and the bivariate correlation between perceived trust scores and
consumer choice was 0.12.
220 Specifically, and as Chart 3 illustrates, the r2 values for each experimental condition are as
follows: 0.22 for the restaurant condition, 0.21 for the house condition, 0.19 for the surgery
condition, 0.09 for the car condition, and 0.01 for the trainer condition. The figures in the graph reep-r
sent r2values. The r2statistic represents the amount of the variance in the dependent variable that is
entirely attributable to the independent variable. r2 values range from zero (no explanatory power)
to one (perfect explanatory power).
221 This Chart is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
narios. They become predictably more conservativ,e however, when the
stakes of the financial transaction are high.
More importantly, the mere presence of a sel-laedrvisor increases the
likelihood that participants will choose the financial option recommended to
them by the seller-advisor, even when the seller-advisor’s recommendation is
motivated by a financial interest that is independent from the interests of the
consumer. Subsequent analyses revealed that this selle-ardvisor effect is not
simply a matter of coldly deferring to the expertise of the se-laldevrisor; a
substantial amount of the variance in consumers’ financial choices in our
study is attributable—independently and explicitly—to the trust they felt
towards their seller-advisor. These findings are host to an array of potential
policy implications for the relationships between selle-radvisors and consumers
in the marketplace, which we discuss at the conclusion of this Article.222
Part One of this study leaves several questions unanswered. For
example, what might be the effect, if any, of the disclosure of a sel-laedrvisor’s
financial interest in the option thatthe seller-advisor recommends to a
consumer? Moreover, does the source of thadtisclosure—either through the
seller-advisor or a third party—affect consumers’levels of trust in the
seler-advisor and, ultimately, the financial choices that they make? Part Two of
our study examines these questions.223
IV. EXPERIMENTAL STUDY: PART TWO
Two questions formed the basis of PartTwo of our study. Recall that
the mere presence of a selle-radvisor in Part Oneincreased the likelihood
that consumers would choose the selle-radvisor’s preferred financial
product.224 Also recall that the seller-advisor preferred that financial product
because the product allowed the seller-advisor to earn an economic benef,it
compared to the disfavored option22.5 It is an open question(
consumers would trust the selle-radvisor if the seller-advisor disclosed his
or her financial interest at the time of the transaction; and (
) whether the
disclosure would affect the consumersf’inancial decisions. On the one
hand, we can imagine that consumers will realize that the sel-laedrvisor’s
recommendation stems from theseller-advisor’s independent financial
niterest, and the consumer will be less inclined to follow the selle-ardvisor’s
advice. On the other hand, we can imagine that theseller-advisor’s
disclosure may make consumers more likely to trustthe seller-advisor’s advice
and follow their recommendation, on account of the seller-advisor’s candor.
222 See infra notes 248–291 and accompanying text.
223 See infra notes 224–245 and accompanying text.
224 See supra notes 209–210 and accompanying text.
225 See supra notes 180–182 and accompanying text.
Second, it is unclear whether the disclosure of the sell-eardvisor’s
financial interest in the transaction must come from theseller-advisor or if it
only matters that the consumer receivsethe information, regardless of its
source. To the extent that the seller-advisor fails to disclose his or her
financial interest, consumers might view that as a violation of the relationship of
trust and confidence that they believethey hold with the selle-radvisor. A
third-party’s disclosure of that financial interest might, therefore, cause
consumers to switch their financial preferences accordingly. If this is so, we
expect that decreased levels of trust in theseller-advisor would be
responsible for consumers’ changed financial preferences. Our methods for testing
these hypotheses and the results from Part Two of this study appear below.
Part Two of this study is composed of data collected from a subseot f
the participants from Part One. Participantswere, therefore, also recruited
through Amazon Mechanical Turk,and completed the study through the
online Qualtrics survey platform.226
The subset of participants whose datais reported in Part Two totaled
558 people. Females composed 49.1% of the subset, and the average age of
participants was 38.88 years old (with a standard deviation of 12.91 years).
Caucasian participants composed 77.8% of the subset, followed by
AfricanAmerican (8.5%), Asian-American (7.2%), Hispanci (4.7%), and “other”
(1.8%). Approximately 52.6% of the sample had obtained at least a college
degree, and the median household income was between $40,000
$49,999. Forty-four percent of the sample had experience with the financial
scenario that they encountered in this study.
B. Procedure and Measures
Because the data we analyze in PartTwo is a subset of the data from
Part One of this study, the procedures and measures were largely the
same.227 The participants in Part Two were randomly assigned to the
“selleradvisor present” conditions of the original experiment. We created two
daditional sub-variables for participants assigned to the selle-ardvisor
conditions, which we discuss below.
First, we manipulated the transparency of the selle-radvisor’s
independent financial interest inhis or her recommendation to the consumer. In the
opaque conditions—to which half of the participants in the sealdlevri-sor
condition were assigned randomly—consumers received no information
re226 See supra note 173–175 and accompanying text.
227 See supra notes 176–184 and accompanying text.
garding the selle-radvisor’s potential conflict of interest. In the transparent
conditions, however, the seller-advisor disclosed the conflict whengiving his
or her recommendation. For example, in the restaurant scenario, the server
clarified that he or shewould recommend the more expensive quail dish
nayway, “even if [he or sh]e would not receive a higher tip because of then-i
creased price of the meal.”228 Participants then followed the procedure
otulined for Part One.229 Participants chose between the two financial options,
rated their preferences for them, and recorded their trust in the seller-advisor.
We subjected participants who were randomly assigned to the opaque
conditions, however, to one more experimental manipulation. After the
participants received a recommendation from the sell-eardvisor, who did not
disclose their financial interest, andrated their preferences for each financial
option, participants read textwhich revealed the selle-radvisor’s incentive,
but from someone other than the seller-advisor. For example, in the restaurant
scenario, participants were told to imagine that, a few days later, they were
casually discussing the dinnerand their entrée choice with a friend whoe-r
marked, “[t]hat’s a tough choice. I guses the server has an incentive to
creommend the expensive dish, since the resulting tip would be higher.”
All participants in the opaque conditions were then asked, “in light of
this conversation,” which financial option they would choose, their prerf-e
ence for each option, and their level of trust in theseller-advisor. All
participants were then debriefed regarding the experimental hypotheses and the
study was concluded. A chart of the experimental language inthe
transparent and opaque conditions appears below.
228 Table 4 provides the text of each transparent and opaque condition scenario. See infra note
230 and accompanying text.
229 See supra notes 176–184 and accompanying text.
“I’ve had both dishes,” the server
says. “The difference between
them is worth the difference in
price. I’d recommend it even if I
would not receive a higher tip
because of the increased price of the
“I’ve been through both
programs,” the trainer says. “The
difference in results is well worth the
difference in price. I’d recommend
it for you even if it were the
cheaper option and I’d get paid less.”
“I’ve driven both cars,” says the
salesperson . . . . “The difference in
mileage makes up for the
difference in price within five years. I’d
recommend the LE to you even if I
weren’t receiving a higher
commission from the sale.”
“It’s clear you love the house,”
says the mortgage agent . . . . “I
would make the same
recommendation to you even if I weren’t
receiving a commission when you
complete the purchase.”
“I think having me perform the
surgery is the best option,” says the
doctor. “I would make this
recommendation to you even if someone
else performed the surgery, and I
did not get paid for it.”
Opaque (Third-Party Reveal)
Your friend remarks, “That’s
a tough choice. I guess the
server has an incentive to
recommend the more
expensive dish, since the resulting
tip would be higher.”
Your friend remarks, “That’s
a tough choice. I guess the
trainer has an incentive to
recommend the more
expensive package, because the
difference in price gets paid
directly to the trainer.”
Your friend remarks, “That’s
a tough choice. I guess the
salesperson has an incentive
to recommend the luxury
model, since the price
difference would result in a higher
Your friend remarks, “That’s
a tough choice. I guess the
mortgage agent has an
incentive to recommend that you
purchase the house, since the
agent gets paid on
Your friend remarks, “That’s
a tough choice. I guess the
doctor has an incentive to
recommend the surgery, since
the doctor would perform it
and get paid for it.”
Scenario Restaurant Trainer Car
230 This Table is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
The relevant information that participants learned, as shown in Table 4, is as follows: (
restaurant server receives a higher tip if the more expensive entrée is selected, (
) the personaltrainer
receives greater compensation if the more expensive training package is selected, (
) the car
salesperson receives a higher commission if the more expensive car is selected, (
) the mortgage
agent receives a commission only if the house purchase iscompleted, and (
) the surgeon has an
incentive to recommend the surgery because he or she would perform it and receive payment for
it. The selle-radvisor revealed the incentive to the participant in the “transparent” condition; a
friend of the participant revealed the incentive in the “opaque” condition.
C. Results and Discussion
We report the results of three different tests in ParTtwo of the study.
First, we examined whether any differences exist with respect to the
financial decisions of the participants inthe transparency condition and those in
the opaque condition, before they learned of the seller-advisor’s financial
interest. Second, examining only participants in the opaque condition, we
examined whether any meaningful differences exist betweecnonsumers’
financial decisions before they learned of the sell-eardvisor’s financial
incentive and after a third partyrevealed it to them. Finally, to the extent that
meaningful differences exist between the financial decisions of the
participants in the opaque ocnditions before and after they learned of the sell-er
advisor’s conflict of interest, we examinewdhether consumers’ level of
trust in the seller-advisor attributes to the shift in financial preference.
We first examined, controlling for the perceived importance and
cmoplexity of the transaction, whether the transparency of the sel-laedrvisor’s
conflict of interest affected participants’ financial choices or their trust in
the seller-advisor. Somewhat surprisingly, we found no meaningful difrf-e
ences in consumer choices231 or in their trust in theseller-advisor.232 This
may suggest that mere disclosure by the sell-eardvisor will not, by itself,
lead consumers to trust thseeller-advisor more and choose the
selleradvisor’s preferred financial product more often. Conversely, it may also
mean that consumers do not “punish” sel-finterested seller-advisors, either
by trusting them less or failing to follow their recommendatio,nbsecause
they are not aware of the seller-advisor’s potential conflict.
As a result of this ambiguity in our results, we next examined how
consumers behave when a third party reveals the seller-advisor’s conflict of
interest. The post-choice disclosure of the selle-radvisor’s financial
incentive by a third party caused a ten percentnet movement in consumer
choices toward the cheaper financial option, which was not recommended by the
seller-advisor.233 This effect was trending toward significance in our sample
231 B = 0.04, SE = 0.18, Wald = 0.04, p = .834, exponential(B) = 1.04 (odds ratio). Compared
to participants in the transparent condition, participants in the opaque condition were 4% more
likely to choose the advisor’s preferred financial option. This (small) observed effect, however,
was statistically unreliable.
232 Mopaque = 5.26 (SE = 0.08), Mtransparent = 5.20 (SE = 0.07); F(
) = 0.28, p = .600, η2p = 0.
233 Unlike our previous statistical tests, which examined how different participants responded
to our experimental manipulations (referred to as a “between-subjects” design), this portion of our
study examines changes over time in the responses given by the same participants, which eis- r
ferred to as a “within-subjects” design.
) = 2.31, p = .12. In this chi-square “goodness of fit” test, we tested the proportion of
participants’ post-disclosure choices against the proportion of pred-isclosure financial choices to
determine whether the pos-tdisclosure proportions meaningfully differed from participants’
h o 90
Pre-Disclosure Post-Disclosure Cheaper
We also tested whether any differences emerged regarding consumers’
willingness to trust the seller-advisor again. A repeated measures analysis of
variance, comparing participants’ willingness to trust the seller-advisor
again in the future before the incentive was revealed with their willingness
to do so after athird party disclosed the incentiv,erevealed a significant
drop in consumers’ trust in the seller-advisor after the third-party disclosure
of the incentive compared to beforehand. Specifically, participants appeared
to trust the seller-advisor highly when the seller-advisor’s conflict of
interest remained opaque, but those trust levels regressed toward the midpoint of
the scale after the third-party disclosure of the conflict.236 The graph below
illustrates the participants’ willingness to trust the seller-advisor both before
and after the third-party disclosure of theseller-advisor’s financial interest
in each of the five scenarios.
disclosure choices. See LAWLESS ET AL., supra note 183, at 210–15. Although consumers’ shift in
preferences did not reach statistical significance as it is conventionally defined (p < .05), it came
close to reaching marginal significance, as it is defined in the statistical literature (p < .10)I.f the
null hypothesis were true (that there was no change in consumers’ financial decisions as a result of
the third party’s disclosure of the sell-eardvisor’s incentive), we would see the results that we
found in our study just twelve times out of every one hundred studies. This suggests,
unsurprisingly, that the newly disclosed information affected our participants’ financial choices partially but
not entirely. As we demonstrate later in this Article, however, the newly disclosed informationdid
negatively affect our participants’ stated preferences for the financial option favored by the selle-r
advisor. See infra note 243 and accompanying text.
235 This Chart is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
236 Mopaque = 4.91 (SE = 0.10), Mtransparent = 4.54 (SE = 0.10); F(
) = 36.54, p < .001, η2p = .12.
Although we found, in parallel, that a third-party’s disclosure of a
seler-advisor’s financial conflict of intreest resulted in (
) a preference shift
among some of the consumers in our study vis-à-vis their financial choices;
) lowered feelings of trust toward the seller-advisor as a result of that
third-party disclosure, we have not determined whether consumers’
willingness to trust the seller-advisor is attributable to the shift in consumer
preferences. To test this proposition empirically, we employed a psychological
mediation analysis, which is a series of regression models designed to test
the psychological “pathway” through which an independent variable exerts
its influence on a dependent variable.238
In our mediation analysis, we hypothesize that the third-party’s
discolsure of the selle-radvisor’s conflict of interest is associated with lowered
feelings of trust on the part of consumers toward thseeller-advisor. These
lowered feelings of trust, in turn, are associated with lowered preferences
for the seller-advisor’s recommended financial option. These lowered
pref237 This Chart is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
238 Mediation analysis determines “when a predictor affects a dependent variable indirectly
through at least one intervening variable, or mediator.” Kristopher J. Preacher & Andrew F.
Hayes, Asymptotic and Resampling Strategies for Assessing and Comparing Indirect Effects in
Multiple Mediator Models, 40 BEHAV. RES. METHODS 879, 879 (2008) (quoting the Abstract).
We performed this mediation using a linear regression analysis. This analysis reports
unstandadrized coefficients (“B”) and standard errors (“SE”). Mediation analysis determines whether the
coefficients are statistically significant via a “student’s t” statistic. A linear regression examines the
independent effects of independent variables on a continuous dependent variableS.ee LAWLESS ET AL.,
supra note 183, at 257–88.
erences then manifest themselves in the financial choices that our
participants made, in which a subset of our participants, upon reflection, chose the
financial option that was not recommended by the seller-advisor.239
The mediation analysis supports our hypothesis that lowered levels of
trust toward the seller-advisor were the mediating factor in our study. The
mediation first demonstrated a statistically significant difference between
consumers’ preferences for theseller-advisor-preferred, more expensive,
financial option before they learned of theseller-advisor’s conflict of
interest and their preferences for that option after they learned of 2it4.1
Specifically, participants preferred the more expensive option significantly less
after learning of the selelr-advisor’s conflict of interest. Next, the analysis
demonstrated that consumers’ willingness to trust theseller-advisor in the
future differed depending on whether they had been made aware of
theseller-advisor’s conflict.242 Consumers were significantly more willing to trust
the seller-advisor again before a third party revealed tsheeller-advisor’s
conflict than they were afterward.
Importantly, we found that, when we included the change in pair-tic
pants’ trust ratings, vis-à-vis the seller-advisor, into the model in which we
examined the change in participants’ preferences for the more expensive
financial option, we found that (
) a change in trust levels was a statistically
significant predictor of the change in consumer preferences; and (
fe239 We performed a special type of mediation analysis called a “repeated measures” or “within
subjects” mediation, which applies the typical mediation analysis to responses made by the same
experimental participants over time during the study. Amanda K. Montoya & Andrew F. Hayes,
Two-Condition Within-Participant Statistical Mediation Analysis: A Path-Analytic Framework, 22
PSYCHOL. METHODS 6, 6–7 (2017) (explaining the procedure and placing it in the context of the
traditional mediation analysis).
240 This Chart is permanently available ahtttp://www.bc.edu/content/dam/bc1/schools/law/
241 B = 0.28, SE = 0.08, t(263) = 3.74, p < .001, CI [0.13, 0.43].
242 B = -0.38, SE = 0.06, t(263) = 6.07, p < .001, CI [0.26, 0.50].
fect of the change in preferences was reduced by0.1 (from 0.28 to 0.18).243
This is a reduction of the effect by 35.7%. We can conclude, therefore, that
lowered feelings of trust toward the seller-advisor after a third party’s sd-i
closure of the seller-advisor’s conflict of interest accounted for nearly 36%
of the change in consumer preference24s4. Moreover, consumers’
preferences for the expensive financial option were strongly, significantly, and
positively associated with their financial choices, such that
highepreferences for the more expensive option were associated with actually choosing
the more expensive option, and vice versa.245 These strong preferences
likely explain a significant remainder of the participants’ decision making.
V. IMPLICATIONS, OBJECTIONS, AND CONCLUSIONS
In this Part of the Article , we offer thoughts about the normative
implications of our study and acknowledge the limitations of our approach and
conclusions.246 We address potential objections to our methodology and
discuss avenues for futureresearch.247 Finally, we offer the concluding
thoughts about our study results and analysis.
A. Research and Policy Implications
In this Article, we identify some of the contours and limitations of
consumers’ trust in seller-advisors. We found that consumers may enter an ni
teraction with a selle-radvisor giving the selle-radvisor the benefit of the
doubt, assuming or “trusting” that the seller-advisor is knowledgeable and
well-intentioned.248 As the stakes and significance of the transaction at issue
increased, consumers were less likely to defer to the selle-radvisor’s advice
to choose a more expensive option2.49 High stakes transactions led to more
conservative decisions. Consumers who received advice, howeverw, ere
more likely to choose the more expensive/riskier option than those who
erceived no advice.250 The fact that consumers were willing to change their
243 Total effect of the difference in trust levels on the difference in participants’ preferences
for the expensive option: B = 0.26, SE = 0.07, t(261) = 3.84, p < .001, CI [0.13, 0.40]. Effect of the
difference in participants’ preferences (while controllingfor their difference in trust levels):B =
0.18, SE = 0.07, t(261) = 2.48, p = .014, CI [0.04, 0.33].
244 Indirect effect of differences in trust levels on differences in participants’ financial
preferences: B = 0.10, SE = 0.04, CI [0.03, 0.18].
245 B = 0.56, SE = 0.09, Wald = 35.63, p < .001, exponential(B) = 1.76. A one-unit increase in
participants’ trust scores was therefore associated with a 75% increase in the odds that they would
choose the advisor’s preferred financial option (and vice versa).
246 See infra notes 248–291 and accompanying text.
247 See infra notes 282–291 and accompanying text.
248 See supra notes 213–215 and accompanying text.
249 See supra note 217 and accompanying text.
250 See supra notes 209–217 and accompanying text.
decisions and move away from the more expensive choice when the selle-r
advisor’s incentives were initially concealed and thelnater revealed by a
third party indicates a potential loss of trust in those situations, putting the
consumer on guard and, therefore, less likely to defer to the seller-advisor’s
Social science literature tells us that society’s goal should not be to
encourage trust, but rather to encouragterustworthiness.252 The focus then
should be on what selle-radvisors can do to signal trustworthiness and to
create a structure around their interactions with consumers that earnes,tly
and in good faith, works to take into account and honor consumers’
preferences in giving advice. By taking actions that signal trustworthiness, a
seller-advisor may actually become trustworthy. Of course, all kinds of signals
can be faked, and seller-advisors could lull consumers into inappropriately
trusting them without too much effort. The law may play a role in verifying
signals of trustworthiness and perhaps in punishing false signals. The law
may also effectively incentivize reliable signals. It must take care, though,
not to mandate signals that could prove false. Requiring everyone to “look”
trustworthy, when not everyone is, would be a great detriment to consumer
trust and well-being. Consumers need help identifying competent,
benevolent seller-advisors who have integrity.
The law may be able to assist by signalingtrustworthy seller-advisors,
but must be very careful not to overburden communications between
consumers and seller-advisors or to legitimize false signals sent by
untrustworthy seller-advisors. The law’s role in promoting safe, trustingelrationships
between consumers and selle-radvisors is to help consumers separate the
good from the bad. As many scholars in the past have noted, the law’s abl-i
ity to influence trust may be limited.253 It is most important that the law not
impede the ability of consumers and seller-advisortso form trusting
realtionships or create so much noise that reliable signals are lost. Perhaps the
law would do best to assist market mechanisms thatwork and to avoid
impeding the effective communication the market hasalready devised. A
system that fosters communication and is still able to punish false isgnals may
be able to strike the optimal balance.
There appear to be several benefits to consumers’ decision making
when seller-advisors disclose their personal incentivevsoluntarily at the
outset of the conversation. Understanding how selle-radvisors are
compensated and what their motivations are for the advice they give helps
consumers better understand the transactions or products they are considering and
251 See HARDIN, supra note 39, at 23.
252 Id. at 1.
253 See, e.g., Ribstein, supra note 92, at 554 (“This article concludes that trust does not
porvide a distinct justification for mandatory legal rules . . . .”).
allows them to make more informed decisions. Such disclosures would also
serve as admissions against interest. That sort of openness is key to building
a belief in the benevolenceof, and thereby trust in, the seller-advisor.254
Disclosure of conflicts of interest and compensation structures is a key
eelment of the fiduciary duty of loyalty.255 Fiduciaries may not harbor financial
interests without disclosing them to their beneficiaries and receiving their
approval.256 Requiring the disclosure of a sel-leardvisor’s interest in the
transaction would honor the hybrid nature of the seller-advisor’s role. Mere
disclosure would not be as onerous as the duties imposed on fiduciaries
because a seller-advisor would not have to seek the consumer’s consent for
the compensation schemeor financial interest. Simple disclosure would
allow a consumer to understand more completely how the transaction works
and to put the seller-advisor’s recommendations in the proper context.
Legally mandated disclosure is fraught. Boo-lkength disclosures for
simple transactions effectively bury important, easy to understand terms,
and are therefore frequently ignored.257 Legally required disclosures are
more likely to be rushed over and treated as an onerous obligation, rather
than as a simple, important part of explaining a transaction to a consumer.258
Further, disclosures made to fulfill legal obligations may not help to build
trust because they do not serve as an indication of voluntary
openness.Admissions against interest do not build trust if they are only given under pain
of legal liability.259 The law may not be able to force conditions amenable to
trust by mandating disclosure. Furthermore, the law may undermine its very
purpose if it goes too far down that path.
There may be a way to use various carrotsto induce seller-advisors to
be more trustworthy, or to try to develop and encourage trustworthiness in
their employees. If the law were to more openly acknowledge that se-ller
advisors have special attributes that put them in a different categotrhyan
other sellers and fiduciary duty-bound advisors, there may be a way to
develop a jurisprudence around their interactions with consumers. When a
consumer is aggrieved bytheir relationship with a selle-radvisor—for
instance, if a consumer received and acted upon completely inappropriate
advice and was harme—da seller-advisor may be given the benefit of the
doubt if he clearly and simply explained his interest in the transaction to the
consumer. Clear and effective warnings to consumers aubto the potential
254 See supra notes 148–156 and accompanying text.
255 See supra note 85 and accompanying text.
256 See Frankel, Fiduciary Duties, supra note 87, at 1229.
257 BEN-SHAHAR & SCHNEIDER, supra note 40, at 8–9.
259 See Ribstein, supra note 92, at 577 (“Regulation thereby may increase the friction and
attendant transaction costs that trust is supposed to reduce.”).
dangers of following the selle-radvisor’s recommendation, or of not doing
more independent research, may warrant more lenient treatment of selle-r
advisors whose advice harms consumers.260 Finding indications of
benevolence and good faith mayabsolve the seller-advisor of responsibility for a
decision that is revealed to be il-ladvised only in hindsight. The law should
seek ways to encourage and incentivize benevolence and commitments to
actions that signal good faith without micromanaging the communications
between seller-advisors and consumers.
Ability can be signaled and disclosed more easily than benevolence2.61
Posting credentials or publicizing the credentials required to obtain a selle-r
advisor position would be an obvious step for companeis interested in
signaling the superior expertise and competence of theisreller-advisors.
Developing a long, successful track record in an industry or geographicael-r
gion can also serve that purpose. Seeking and highlighting favorable
consumer testimonials and reviews can also signal successful experience to
potential consumers. Professional associations can set standards for
expertise and competence and require the disclosure of certain credentials. They
can also require disclaimers by sell-eardvisors that express the limits of
their knowledge and ability and point consumers to other helpful resources
that may offer them guidance. Admissions against interest can, again, be
useful to signal trustworthiness with regard to competence or ability2.62 If a
seller-advisor says clearly, “I can help you with x, but I can’t help with y
because I don’t have any experience with y. Y may be better for you, but
you would have to talk with someone else about that,” that admission may
communicate knowledge of the topic more generally by showing an
awareness of y and also a comfort with what the selle-ardvisor knows as well as
what the seller-advisor does not know. The doctor in ourscenarios did not
admit a lack of knowledge about other procedures or treatments and did not
emphasize that his experience was limited to one kind of treatment. Our
results showed that patients were willing to give doctosrthe benefit of the
doubt at the outset, butwere more hesitant to follow the doctors’ advice as
the stakes of the scenario increased.263 Someone who is comfortable
admitting what they do not know may seem less likely to make mistakes by
overselling the advice they give based on what they do know. Understanding the
limits of one’s own knowledge and expertise is an important element
oftruly demonstrating expertise. And, of course, admitting limitations is a form
260 Potential causes of action could include negligent misrepresentation, breach of the implied
covenant of good faith and fair dealing, malpractice, or violation of any number of consumer
261 See supra note 144 and accompanying text.
262 See supra notes 144–147, 150 and accompanying text.
263 See supra notes 216–218 and accompanying text.
of openness that is likely to also increasceonsumers’ faith in the selle-r
The law may be able to mandate disclaimers in some instances,
requiring that seller-advisors honestly present the limits of their credentials and
expertise. The typical problems with mandatory disclosure regimes would
arise if those disclosure requirements go too fa26r5. Standards of care and
licensing requirements are the usual legal responses to problems of
competence. All are strategies that can be effective and help communication and
signaling if used judiciously.Lawmakers must be cautious when thinking
about expanding licensing requirements to new industries. Licensineg- r
gimes can be expensive barriers to entry for new providers and can be
difficult to implement, monitor, and comply with. Some minimal standards can
be helpful in specialized fields, but requiring that every potential s-eller
advisor pass a test and pay fees would not be the answer to consumer
vulnerability to the advice of seller-advisors.
Professional codes of conduct or even codes of conduct internal
tonidividual companies could help to define standards for integrity. If
employees are able to internalize those codes, then the firm may be able to develop
a reputation for having honorable employees bound to observe a code of
conduct that the firm can easily define. One example of this would be
Porgressive Insurance advertising that the companywill tell you if another
insurer would offer someone in your situation better premium2s6.6 The
company is advertising a commitment to honesty and benevolence by providing
information to its customers that allows them to make the decision that is in
their interests, even if those interests conflict with the interests of
Progressive. Another way to communicate integrity would be to treat employees
with compassion. If a firm treats its employees well, even when it is more
expensive to do so, consumers may assume that the company ismore likely
to apply the same standard of care to them.267 Integrity refers to a personal
commitment to an honorable code of conduc26t8. Such a personality trait
may be difficult for companies to inspire or guarantee, but not impossible to
cultivate through codes of conduct, norms, clearly stated priorities and
vlaues, and careful hiring and supervision. A culture of integrity could carry
over to seller-advisor employees and could strongly influence the wsayin
264 See supra note 256 and accompanying text.
265 BEN-SHAHAR & SCHNEIDER, supra note 40, at 8–9.
266 See History, PROGRESSIVE INSURANCE, https://www.progressive.com/progressive-insurance/
history/ [https://perma.cc/AVF9-YR7M] (providing a description of this practice).
267 See Laura Lorenzetti, Starbucks to Provide Free College Tuitiofnor Baristas, FORTUNE
(June 16, 2014), http://fortune.com/2014/06/16/starbucks-to-provide-free-college-tuition-for-baristas/
268 See supra note 141 and accompanying text.
which those seller-advisors interact with consumers. For individuals,
reuptation is the best way to establish and signal integrity.
The law could, theoretically, be tremendously helpful when an entire
industry suffers a crisis and appears to lack integrity. Then, strict legal
standards and consumer protections can coax consumers back to the
industry to help encourage the interactions that will allow the industry pair-tic
pants to rebuild trust. Over time, the law may relax those regulatory
standards (though it almost never does) to avoid overburdening anndiustry that
has overcome a particularly corrupt episode.
We find a contrary example to the idea that regulatory laws can prompt
renewed trust in an industry in the aftermath of the recent financial crisis. In
our study, we found that people were still, sruprisingly to us, distrusting of
mortgage lenders nearly ten years after the financial crisis caused by a
clolapse of the housing marke2t6.9 Our research subjects seemed hesitant to
defer to the advice of a mortgage lender and were very conservative in their
decision-making about how much money to borrow for a mortgage and
under what circumstances.270 Many of the strict standards that the Dodd Frank
Act imposed after the crisis were aimed at requiring more conservative
mortgage lending.271 The regulations addressed what kinds of loans could
be made under what circumstances.272 Perhaps tellingly, the regulations
neither imposed stricter codes of conduct on mortgage lenders or brokers, both
originators of the crisis, nor changed the nature of the relationship between
mortgage originators and consumers, other than adding items to what are
already voluminous mandatory disclosur2e73s. The regulations simply
kicked subprime borrowers out of the market.274 The knowledge that a
borrower is much less likely to be given a loan, a loan that they have very little
hope of repaying, should be comforting knowledge and a useful assurance
to be provided by regulation. Our research subjects, however, were hesitant
to take the risks encouraged by our mortgage lendearnd were reluctant to
be pulled into a lower probability of being able to repay their loan2s7.5 Not
all regulatory interference can restore or encourage trust, even in industries
whose reputations have been decimated.
Indeed, some argue that people will behave more honorably and act with
more integrity in the absenceof legal interventions.276 Extrinsic motivations
such as legal penalties may result in more guarded, selfish interactions.277 The
law can interfere with trust by putting people on guard, making them worry
that others will take advantage of them or try to expose them to legal penl-a
ties. Think of how your interaction with someone would chang,e iinf the
middle of a dispute, they asked you to put things in writing or told you they
were recording the conversation or they threatened to retain a lawyer.
Interpersonal trust, particularly as it concerns integrity and benevolence, relies
largely on notions of intrinsic motivation and a belief that others are treating
you better than the minimum legal standard requires.278 Indeed, if someone is
doing only what the law requires, we are not at all convinced that they are
worthy of our trust; we only know that we cannot punish them.
Companies may do best to stay ahead of the legal requirements. Doing
more than the law requiresand developing a reputation for treating
cnosumers and employees better than the legal standard mandates is the way to
build trust.279 This is not to say that the law does not have a role to play in
facilitating trusting relationships among strangers in the marketplace.a-R
ther, the law must be dispatched thoughtfully with a deep awareness of its
goals and limitations. Perhaps the most useful function the law can serve in
encouraging trust is an expressive one—one that helps trustees signal their
trustworthiness in ways trustors can see and understand. To that end, legal
rules and standards for behavior should be clear and obvious to trusotrs and
easy for trustees to follow.
Ultimately, we found that trust in a selle-ardvisor explains some of a
consumer’s decision making, but not al,l or even most, of it.280 Consumers
still keep their own counsel to some extent and harbor and honor personal
275 See supra note 106 and accompanying text.
276 See Philippe Aghion et al.,Regulation and Distrust, 125 Q.J. ECON. 1015, 1015–16 (2010)
(describing the vicious cycle in which people are distrustful, so they demand more regulation and
then become less trustworthy and feel that their distrust is justified); Roland Bénabou & Jean Tirole,
Intrinsic and Extrinsic Motivation, 70REV. ECON. STUD. 489, 492 (2003) (explaining that showing
confidence or trust in an agent increases the agent’s intrinsic motivation to perform a task)S.ee
generally Edward M. Iacobucci, Market Conditions, Reputation and ContracDtesign (Jan. 2014)
(unpublished manuscript) (on file with author) (arguing that informal means of enforcing contractual
obligations often are preferable and more effective than formal mechanisms).
277 Bénabou & Tirole, supra note 276, at 490 (defining extrinsic motivation as “contingent
rewards” and intrinsic motivation as “the individual’s desire to perform the task for its own sake”).
278 Ribstein, supra note 92, at 581.
279 Lorenzetti, supra note 267.
280 See supra notes 212–223 and accompanying text.
preferences that seller-advisors cannot fully know or understand. The more
trustworthy seller-advisors are and the better they are at signaling their
trustworthiness, the more likely they will be able to help consumers enter
mutually beneficial transactions on appropriate terms. Trustworthy
selleradvisors can be a valuable resource to uninformed, unsophisticatedn-co
sumers.281 The law may be able to help trustworthy selle-radvisors send the
right signals and to help consumers correctly interpret those signals.
B. Objections and Future Directions
The study reported in this Article is the first to empirically explore the
relationship between consumers and selle-radvisors, whom the law allows
to provide advice to consumers without owing afiduciary duty. This study
challenges the traditional view of law and policymakers in this ar—eathat
consumers who deal with selle-ardvisors subscribe to a theory of caveat
emptor, such that protections from opportunistic selle-radvisors are
unnecessary.282 Our findings suggest thatconsumers are influenced by the
recommendations of seller-advisors across a wide, representative set of
commonplace financial transactions, with stakes large and sma2ll8.3 Moreover,
our results suggest that the influence that seller-advisors exert over
consumers may stem from a mistaken belief on the part of consumers that these
types of advisors are looking out for their financial well-being.
The use of controlled laboratory experiments to inform policy is a
burgeoning but relatively new development in t hlaew.284 Although
experimental data has informed policy debates on a range of criminal law and
evidentiary issues—such as eyewitness testimony, the hearsay rule, and the
interrogation of suspects—it has so far played less of a role in informing
policy in the realm of business law.285 It is, of course, important not to
overstate the implications of anysingle empirical study, including experimental
ones.286 But it is also important to situate any empirical study within the
literature on which the study was based, so that lawmakers can draw
appropriate, measured conclusions from the study’s findings.
281 See supra notes 38–46 and accompanying text.
282 See supra notes 50–82 and accompanying text.
283 See supra notes 202–223 and accompanying text.
284 See LAWLESS ET AL., supra note 183, at 79–104.
285 See generally 2 ADVANCES IN PSYCHOLOGY AND LAW (Brian H. Bornstein & Monica K.
Miller eds., 2016) (discussing topics such as plea dealings and jurors’ reactions to certain kinds of
evidence, and related policy implications).
286 See Samir D. Parikh & Zhaochen He,Failing Cities and the Red Queen Phenomenon, 58
B.C. L. REV. 599, 631 (2017) (noting that statistical significance in empirical studies doneost
necessarily imply policy significance).
With that caveat in mind, controlled experiments hold mda-ny
vantages to non-experimental, empirical studies. Laboratory experiments
have the advantage of high internal validity because of the greater control
that experimenters can exhibit with respect to the variables under
investigation.287 This is because in a laboratory experiment, every aspect of the study
is kept uniform except the aspects of the study that the experimenter
manipulates. This allows researchers to make even stronger causal conclusions—
that a certain manipulation in fact caused the outco—methan researchers
who engage in non-experimental work and use statistical controls instead.288
Empirical validity, however, is often a tradeoff between competing ni
terests. Empirical methods have heightened internal validitybut are often
weaker with respect to external, or ecological, validity28.9 Simply stated, it
is always an open question whether the behavior that is exhibited in the
relatively artificial confines of the laboratory experime n,twhere the variable
of interest is isolated, will also be exhibited in the noisy world outside the
It is, of course, important to take this critique seriousl,yand carefully
evaluate experimental research with an eye toward external validity when
evaluating legal policy. There are, however, at least two responses to
consider. As an initial matter, many laboratory experiments are replicable in the
“real world,” particularly studies that examine people’s attitudes toward
legal rules or scenarios2.91 Second, as long as the experiment is placed in
the scientific context in which the experiment was uccotned, such as
against the literature that led to the experiment in this first place, empirical
data—even imperfect data—will often be preferable to making policy
determinations, particularly those that make assumptions about consumer
ebhavior, in the absence of any such data. This may seem an obvious set-at
ment, but one to which rul-emakers and policymakers should give careful
287 See Lynne ForsterLee & Irwin A. Horowitz,The Effects of Jury-Aid Innovations on Juror
Performance in Complex Civil Trial,s JUDICATURE, Jan.–Feb. 2003, at 184, 184–85(discussing
the benefits of laboratory-based mock jury empirical studies as opposed to in situ jury research).
288 Sevier, supra note 189, at 705–06.
289 Jennifer K. Robbennolt, Apologies and Legal Settlement: An Empirical Examination,102
MICH. L. REV. 460, 483 n.108 (2003).
290 Id.; see also LAWLESS ET AL., supra note 183, at 79–104 (discussing the strengths,
weaknesses, and tradeoffs among controlled laboratory experiments, field experiments, quasi-experiments, and
291 See Mark Kelman et al., Context-Dependence in Legal Decision Making, in BEHAVIORAL
LAW AND ECONOMICS 61, 73 (Cass R. Sunstein ed., 2000).
Consumers often seek advice from those selling products. They give
seller-advisors the benefit of the doubt that the adviceseller-advisors
provide, at least to some extent,will be designed to promote the best interests
of the consumer. Our studypresents evidence of that baseline trust and
shows that varying degrees of trust in selle-radvisors can explain consumer
choices. Our study found that seller-advisors are able to effectively
encourage consumers to make more expensive choices and that there is somee-d
gree of backlash when consumers are informed of a selle-ardvisor’s
incentives after they have made their choice. That backlash seems to indicate a
kind of resentment that an adverse incentive was intentionally concealed
from the consumer.
The law largely ignores the trust consumers place in se-laldervisors
when seeking their advice. Fraud liability provides aemr edy for lies, but
fiduciary duties do not apply to sellers who only incidentally give advice.
Still, consumers may trust a selle-radvisor’s advice as much as they would
trust the advice of a fiduciary advisor.Lawmakers should not be too quick
to design legal remedies to fill that gap. They should not expand fiduciary
obligations to any instance of a person asking advice of another. Rather, we
should consider the trust that underlies consumer advi-cseeking and
endeavor to find ways to help trustworthy seller-advisors signal their
trustworthiness. Similarly, we should aim toexpose the untrustworthy, making the
variations between the different kinds of advisors more apparent to
consumers who may need help making purchasing decisions. Too much
regulation in matters of trust can be just as harmful as too little. The law cannot
“make” anyone trustworthy; it can only help interested parties signal the
trustworthiness that they have already developed.
1 Trust, DICTIONARY .COM, http://www.dictionary.com/browse/trust [https://perma.cc/9G8LKZRQ]. Other dictionaries define trust as “assured reliance on the character, ability, strength, or truth of someone or something,” or “a charge or duty imposed in faith or confidence or as a condition of some relationship .”E.g., Trust, MERRIAM-WEBSTER .COM, https://www.merriam-webster. com/dictionary/trust [https://perma.cc/2HS4- FZ3C ].
2 Elisabeth Rosenthal , Patients' Costs Skyrocket; Specialists' Incomes Soa,rN. Y. TIMES (Jan. 18 , 2014 ), https://www.nytimes.com/ 2014 /01/19/health/patients -costs-skyrocket-specialists-incomessoar .html [https://perma.cc/8Y8H-D4MJ].
4 Id. A basal cell carcinoma (“BCC”) is an “uncontrolled growth or lesion that arise[s] in the skin's basal cells, which linethe deepest layer of the epidermis (the outermost layer of the skin).” Basal Cell Carcinoma (BCC, )SKIN CANCER FOUND ., http://www.skincancer.org/skincancer-information/basal-cell-carcinoma [https://perma.cc/K6FV-3ZUU]. BCC is typically caused by overexposure to the sun and can take the form of “open sores, red patches, pink growths, shiny bumps, or scars .” Id.
5 Rosenthal, supra note 2.
6 Id. The Mayo Clinic defines the Mohs technique (also called Mohs micrographic surgery) as “a precise surgical technique used to treat skin cancer.” Mohs Surgery, MAYO CLINIC , http://www. mayoclinic.org/tests-procedures/mohs-surgery/basics/definition/prc-20014261 [http/s/p:erma.cc/ FVC6-2JAE]. During the surgery, “thin layers of can-cceorntaining skin are progressively e-r moved and examined until only cancer-free tissue remains.” Id. The Mayo Clinic further clarifies: “The goal of Mohs surgery is to remove as much of the skin cancer as possible, while doing mniimal damage to surrounding healthy tissue. Mohs surgery is usually done on an outpatient basis using a local anesthetic .” Id.
7 Rosenthal, supra note 2.
8 Id. There was apparently a dispute between Little and her dermatologist regarding whether the BCC was located on her eye or cheek. Id. Only in exceedingly rare cases can it spread to other parts of theandbodbyecome lifethreatening .”).
20 Rosenthal, supra note 2.
22 Id. Medicare currently views the Mohs procedure as “potentially misvaluedi”nsofar as the procedure is potentially overused and overpricedS.ee id.; see also DEP'T OF HEALTH & HUMAN SERVS., CTRS. FOR MEDICARE & MEDICAID SERVS., GUIDANCE TO REDUCE MOHS SURGERY REIMBURSEMENT ISSUES ( 2013 ), https://www.cms.gov/Outreach-and - Education/ Medicare-LearningNetwork-MLN/MLNMattersArticles/Downloads/SE1318.pdf [https://perma.cc/AB64-TF4Q] (providing guidance to reduce reimbursement issues for Mohs Surgery) . After extensive negotiations spnaning several months, Little reduced the charges for her surgery to almost $3,000 . Rosenthsaul, pra note 2 . She described this outcome as follows: “It was like, 'Taokuet your purse, we're robbing you .'” Id.
23 Rosenthal, supra note 2.
25 See Fiduciary , BLACK'S LAW DICTIONARY (10th ed. 2014 ) (defining a fiduciary as “[s]omeone who is required to act for the benefit of another person on all matters within the scope of their relationship”); Tamar Frankel,Fiduciary Law in the TwentyF-irst Century , 91 B.U. L. REV. 1289 , 1293 ( 2011 ) [hereinafter Frankel, Fiduciary Law] (describing “Components of Fiduciary Relationships” ).
37 See infra notes 246-291 and accompanying text.
38 See INT'L FED'N INFO. PROCESSING , Trust Management V , IFIP AICT 358 ( Ian Wakeman et al. eds., 2011 ) (citing Toshio Yamagishi's Keynote Speech, Trust and Social Intelligence, at the 2011 IFIP Conference in Copenhagen); J. David Lewis & Andrew Wei,geTrrtust as a Social Reality , 63 SOC. FORCES 967 , 969 ( 1985 ). Some would argue that social interactions and networks also constitute markets with personal and emotional exchanges of utility driving incentiveSse .e Ann Laquer Estin, Love and Obligation: Family Law and the Romance of Economic,s 36 WM . & MARY L. REV . 989 , 989 ( 1995 ) (“The final legitimation of the union [between economic theory and family law] came in 1992, when Professor Gary S. Becker of the University of Chicago was awarded the Nobel Prize for his work applying microeconomic theory to social problems, inclduing various aspects of family life.” (citing GARY S. BECKER, A TREATISE ON THE FAMILY ( 1991 )).
39 See RUSSELL HARDIN , TRUST 20 - 23 ( 2006 ) (illustrating an “exchange model of trust” using game theory); Giangiacomo Bravo & Lucia TamburinoT,he Evolution of Trust in NonSimultaneous Exchange Situation , s 20 RATIONALITY & SOC'Y 85 , 85 ( 2008 ) (defining “nonsimultaneous exchanges” as those where “a subject bears a cost in order to provide a benefit to a different subject, who subsequently may or may not reciprocate”).
40 See OMRI BEN-SHAHAR & CARL E. SCHNEIDER, MORE THAN YOU WANTED TO KNOW: THE FAILURE OF MANDATED DISCLOSURE 10 ( 2014 ) (“[M]any people make decisions with scant information and slight deliberation .”); Oswald A . Mascarenhas et aBl.u,yer-Seller Information Asymmetry: Challenges to Distributive and Corrective Justice2,8 J . MACROMARKETING 68 , 68 ( 2008 ) (discussing the relative lack of information available to consumers compared to sellers).
41 See BEN-SHAHAR & SCHNEIDER, supra note 40, at 10; HARDIN, supra note 39, at 23.
42 See HARDIN , supra note 39, at 23 (comparing the difficulty of winning trust with the ease of losing trust).
78 See 15 U.S.C. §45(a)(1) ( 2012 ) (stating that “[u]nfair ordeceptive acts or practices in or affecting commerce, are hereby declared unlawful”) (emphasis added)C;AL . CIV. CODE § 1770 (West 2017 ) (stating that “unfair methods of competition and unfair or deceptive acts or practices” are unlawful, including deceptive representations or designations)C;AL . BUS. & PROF. CODE § 1720 (West 2017 ) (defining “unfair competition”).
79 See, e.g., CAL . CIV. CODE § 1760 (explaining that the title addressing remedies “shall be liberally construed and applied”); Melinda Rose Smolin,Investment Securities: Beyond the Scope of California's Consumers Legal Remedies Act? , 25LOY . L.A. L. REV . 127 , 133 ( 1991 ) (discussing how “[t]he 'liberal construction' language implies that more causes of action . . should come within the scope of the Act,” and thus provides plentiful avenues for consumer protection )).
80 See Lisa Yurwit , Restitution in Consumer Protection Actions: Stop the Reliance on Rie-l ance, 36 U. BALT. L. REV . 393 , 413 ( 2007 ) (arguing that procedures for handling administrative claims would provide for a more fluid recovery process than prolonged litigation).
81 See Mascarenhas et al., supra note 40 , at 78.
82 See infra notes 83-99 and accompanying text.
83 See Johnson, supra note 50, at 104.
84 Frankel, Fiduciary Law, supra note 25 , at 1291 , 1293 .
85 See Margaret M. Blair & Lynn A. Stout , A Team Production Theory of Corporate Law , 85 VA. L. REV. 247 , 299 ( 1999 ) (discussing the duty of loyalty); Larry E . RibsteinF,encing Fiduciary Duties, 91 B.U. L. REV. 899 , 903 ( 2011 ) (discussing Justice Cardozo's famous judicial expression that fiduciary duties include the duty of loyalty which is “one of selfless behavior”).
86 See Leo E. Strine et al., Loyalty's Core Demand: The Defining Role of Good Faith in Corporation Law , 98 GEO. L.J. 629 , 654 - 55 ( 2010 ) (explaining that if a fiduciary is to act on his own as a free-standing fiduciary, he must act in accordance with certain duties, including “prudence”).
87 Tamar Frankel , Fiduciary Duties as Default Rule,s 74 OR . L. REV. 1209 , 1211 ( 1995 ) [hereinafter Frankel , Fiduciary Duties].
88 See Larry E. Ribstein , Are Partners Fiduciaries?, 2005U . ILL. L. REV. 209 , 215 - 16 ( explaining the unique nature of and need for fiduciary duties ).
89 See Blair & Stout, supra note 85, at 299; Frankel, Fiduciary Duties, supra note 87 , at 1210.
90 RESTATEMENT (THIRD) OF TRUSTS § 90 (AM . LAW. INST. 2007 ) (construing the “prudent investor rule” to mean that the trustee must act as a reasonable person would if they were in control of the trust, including the use of reasonable skill and care to preserve the property and make the trust productive); see also Harvard Coll . v. Amory, 26 Mass. (9 Pick.) 446 , 465 ( 1830 ) (articulating the “prudent man rule” as requiring that trustees “conduct themselves honestly and discreetly and carefully, according to the existing circumstances, in the discharge of their trusts”).
91 Ribstein, supra note 88, at 229 ( explaining problems that result when confidential information is entrusted to non-fiduciaries rather than constraining the discretion of confidential information through one who exercises power over another's property (a fiduciary)); D. Gordon Smith , The Critical Resource Theory of Fiduciary Duty , 55 VAND. L. REV. 1399 , 1460 ( 2002 ) (“The imposition of fiduciary duties can protect creditors during the transitional period, when they are particularly vulnerable because the managers of the debtor would recognize the inevitability of the control transfer .”).
269 See supra notes 164 , 216 and accompanying text.
270 See supra note 216 and accompanying text.
271 See Jason Scott Johnston, Do Product Bans Help Consumers? Questioning the Economic Foundations of Dodd-Frank Mortgage Regulation, 23 GEO . MASON L. REV 617 , 635 - 52 ( 2016 ); Adam J . Levitin et al., The Dodd-Frank Act and Housing Finance: Can It Restore Private Risk Capital to the Securitization Market?,29 YALE J . ON REG . 155 , 169 - 71 ( 2012 ). See generally Dodd-Frank Wall Street Reform and Consumer Protection Act , Pub. L. No. 111 - 203 , 124 Stat. 1828 ( 2010 ) (codified as amended at 15 U .S.C. § 78o(k)(1) ( 2012 )).
272 See Johnston , supra note 271 , at 635-52.
273 Id. at 694. But see Cary Martin Shelby, Closing the Hedge Fund Loophole: The SEC as the Primary Regulator of Systemic Risk, 58B . C. L. REV . 639 , 682 - 86 ( 2017 ) (suggesting, in discussing the Dodd-Frank Act, that “improving transparencycan be an effective regulatory tool inerducing systemic risk, especially considering that the financial crisis was uniquely characterized by information asymmetries”).
274 Johnston, supra note 271, at 651-52.