Book contents
- Frontmatter
- Contents
- Contributors
- Series Preface
- Preface
- Acknowledgments
- Part I Overview
- Part II Judgment and decision-making research involving users of accounting information
- 2 Decision-making research in managerial accounting: Return to behavioral-economics foundations
- 3 Experimental incentive-contracting research in management accounting
- 4 Judgment and decision-making research in financial accounting: A review and analysis
- 5 The individual versus the aggregate
- Part III Judgment and decision-making research involving auditors of accounting information
- Part IV Conclusion
- References
- Index
5 - The individual versus the aggregate
Published online by Cambridge University Press: 03 May 2010
- Frontmatter
- Contents
- Contributors
- Series Preface
- Preface
- Acknowledgments
- Part I Overview
- Part II Judgment and decision-making research involving users of accounting information
- 2 Decision-making research in managerial accounting: Return to behavioral-economics foundations
- 3 Experimental incentive-contracting research in management accounting
- 4 Judgment and decision-making research in financial accounting: A review and analysis
- 5 The individual versus the aggregate
- Part III Judgment and decision-making research involving auditors of accounting information
- Part IV Conclusion
- References
- Index
Summary
Introduction
To what degree do individual decision biases affect aggregate behavior? This question was introduced, and “answered, ” in the accounting literature twenty years ago when Gonedes and Dopuch (1974) argued that market efficiency necessarily precluded any impact of individual bias on aggregate capital–market behavior (that is, price). We know now that this claim need not be true. Recent advances in both theoretical and empirical research open the door for the influence of individual bias on aggregate–level behavior in capital markets as well as other aggregate settings. Experimental methods enhance our ability to pinpoint when biases do occur, measure the cost of bias, and examine what factors extinguish biases. In this chapter, we review the historical development of the issue of individual and aggregate behavior and develop a framework to systematically advance our knowledge in this area.
Since no generally accepted theory linking individual behavior to aggregate level behavior exists, we develop a framework enumerating the observable factors that distinguish individual decision–making settings from aggregate decision–making settings. Since these factors transcend theoretical paradigms, they form the basis for dialog between those that draw theory from economics and those that draw theory from psychology. In the spirit of enhancing such a dialog, we use this framework to examine several streams of research, and begin to address how changes in observable factors affect aggregate behavior.
In examining these settings, we ask not only whether individual biases persist at the aggregate level, but also whether aggregate settings introduce “new” biases of their own.
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- Judgment and Decision-Making Research in Accounting and Auditing , pp. 102 - 134Publisher: Cambridge University PressPrint publication year: 1995
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