Critically Delegating, or Fearfully Abrogating?

Do individuals tend to think critically about financial advisor recommendations, or blindly follow them? In the March 2009 article entitled “Expert Financial Advice Neurobiologically ‘Offloads’ Financial Decision-Making under Risk”, Jan Engelmann, Monica Capra, Charles Noussair and Gregory Berns investigate the neurobiological basis of the influence of expert advice on financial decisions via functional Magnetic Resonance Imaging monitoring of individuals choosing between a certain payment and a lottery, with and without expert advice. Using test results for 24 individuals (mostly female and mostly undergraduate students), they conclude that:

• Behaviorally, individuals tend to follow a financial expert’s advice.
• Neurobiologically:
  • While making a decision on their own (with advice), individuals exhibit (no) correlated activity in parts of the brain associated with valuation judgment.
  • While making a decision on their own (with advice), individuals exhibit (flattened) correlated activity in parts of the brain associated with probability calculation.
• These results support a belief that individuals advised by financial experts tend to “offload” (accept without checking) judgments of the values of alternative investments.

In summary, evidence from this laboratory test suggests that individuals tend to accept without checking the risk-reward judgments of financial experts.

Might individuals more experienced than those tested be less accepting of expert advice?

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