Luigi Guiso, Gabriele Foà, 12 October 2015

Most households lack the skills to make financial decisions and therefore rely on the advice of experts. But do experts provide unbiased recommendations or do they distort their advice to serve their own needs? This column provides evidence that they do distort their advice, using the mortgage market in Italy. If households receive no biased advice, the relative cost of different types of mortgages should be the only variable affecting household choices. But the findings show that characteristics of the lender matter over and above relative prices. This supports the view that banks affect household choices not only through a price channel, but also through an advice channel.

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