Transcript (ppt)

What increases biases in judgments
Type of Judgment
Ambiguity
Attachment
Familiarity
Bias in
judgments
Seeking
Approval
Discounting
Escalation
Disclosure
Ambiguity in accounting
• Study of approx 50 tax preparers shows 83%976% difference in how much a family owes in
yearly taxes
– Ambiguity in Income, deductibles, depreciation
schedule
• Declaring items as revenue vs. expenses (early
vs. later) has implications on how stockholders
react
• Firms hire based on how auditors interpret
accounting problems
Self-serving Bias
Attachment
Bias in
Judgment
Students role playing as
plaintiffs (in an accident)
predicted that they would
receive larger awards from
the judge than did those
role-playing the defendants
Types of training that does/does
not decrease self-serving bias
Learning
about selfserving
biases
Writing
essays
arguing for
other side
0
0
Bias in
judgments
-
Reading
case first
before
being
assigned a
role as
plaintiff/
defendant
Seeking approval
• You are even more biased toward yourself when
someone else is biased toward your opinion when
you come to that opinion yourself
• Implications for overly biased judgments
– E.g., when auditors make judgments by themselves first
vs. merely “endorsing” judgments that clients already
made (they are even more biased toward their selfserving biases)
Familiarity, discounting, escalation
• On-going relationships Familiarity
– Decide between negatively affecting clients (who are
company executives) vs. company investors (who are
not clients)
• Discounting
– Favour immediate consequences vs. delayed uncertain
consequences (movie)
• E.g., damage to relationship, loss of contract, unemployment
• Escalation
– Sum of small judgments large biases (corruption)-movie
Auditor Attachment affects Bias in Judgment
• Study of buyer, seller, buyer auditor and seller
auditor
–
–
–
–
Seller valued firm more than buyer
Auditors were more biased toward client interests
Sellers auditors valued firm more than buyer auditor
Reward for accuracy for auditors did not eliminate
the bias they already had
Auditor Attachment affects Bias in Judgment
• Auditors who were hired by the company
were more likely to conclude that the
company complied with the GAAP rules
rather than those auditors who were hired
by the company’s business collaborator
• Experience of auditor did not decrease the
bias
How evidence supports the link
Type of
Judgment
Bias in
Judgment
Those who generated own
audits first and then judged
company reports were less
biased than those who
judged company’s reports
first and then generated
their own audits
Disclosure of
conflict of
interest
Bias in
Judgment
•Advisors vs. estimators of
how much $$ in jar
•Estimator got paid for
accurate judgments
•Advisor got paid for how high
estimator’s estimate was (i.e.,
advisor had a incentive to
make higher judgments)
•Disclosure of advisor’s motive to
estimator did not lead estimators
to discount advisor’s advice and
Disclosure of
make lower judgments so
conflict of
advisors made more than
interest
estimators
Bias in
Judgment
Disclosure of
conflict of
interest
Bias in
Judgment
•Advisors who were given
incentives to mislead
estimators to make high
judgments and whose
motives were disclosed to
estimators were more biased
than those whose motives
were not disclosed.
•Because advisors seemed
to adjust for estimator’s
discounting and so made
even higher judgments
Legal reform in accounting should remove the
incentive for being attached and should take
into account the negative effects of disclosure to
the organization
Legal Reform
?
Increase Disclosure
+
Reduce Attachment
Reduce Bias in Judgment