Behavioral Accounting

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Research Methods in
Behavioral Accounting
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Behavioral Accounting Research:
Introduction
Definitions---
• The study of the behavior of accountants or the behavior of
non-accountants as they are influenced by accounting
functions and reports (Hostedt & Kinard).
• Behavioral accounting research tests hypotheses regarding
Akuntansi Keperilakuan- Choirunnisa Arifa

the implications of realistic assumptions about human

rationality for economic decisions in accounting settings
(Waller, 2002).
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Behavioural Accounting Research:
Introduction

Definitions---
 Behavioral Accounting Research introduce the field of
behavior accounting by describing some of the key questions
it investigates and some of the main research tools used by
researchers. Along the way we will indicate some of the
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important findings so far from this research, particularly in the

area of financial accounting.
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Behavioral Accounting Research:
Definition and Scope
 ‘Positive’ research encompasses
 Capital markets research
 asks how do securities markets react to accounting information
 Agency theory research
 asks what are the economic incentives that determine the
choice of accounting methods
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 Behavioural accounting research

 asks how do people actually use and process accounting
information
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5 Behavioral Accounting Research:

Definition and Scope

 Capital markets research looks at the macro level of

aggregate securities markets
 Agency and behavioural research both focus on the
micro level of individual managers and firms
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6 Behavioral Accounting Research:

Definition and Scope

 Capital markets and agency research are both based on

economics and assume everyone is a rational wealth
maximiser
 Behavioural research is based on psychology, sociology and
organisational theory and generally makes no assumptions
about how people behave
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7 Behavioral Accounting Research:

Definition and Scope

 The major type of BAR is

 Human judgement theory (HJT) or
 Human information processing (HIP)
 Looks at the judgement and decision making of accountants
and auditors and the influence their output has on users’
judgements and decision making
 aim is to explain and predict behaviour and improve decision making
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Why is BAR important?

 It discovers how people use and process accounting

information
 It provides valuable insights into the ways different types of
decision makers produce, process and react to particular
items of accounting information and communication methods
 It provides useful information to accounting regulators
 It leads to efficiencies in the work practices of accountants
and other professionals
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An overview of approaches to
understanding information processing

 Three major research approaches

 Brunswik lens model
 the dominant approach
 process tracing
 build representative decision trees
 probabilistic judgement
 probability statements based on Bayes’s theorem
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The Brunswik lens model

 Used as an analytical framework and the basis for

most judgement studies involving
 prediction (e.g. bankruptcy)

 evaluation (e.g. internal control)

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The Brunswik lens model

 Has provided valuable insights regarding:

 patterns of cue use evident in various tasks
 weights that decision makers implicitly place on a variety of information
cues
 the relative accuracy of decision makers of different expertise levels in
predicting and evaluating a variety of tasks
 the circumstances under which an expert system and/or ‘model of
human behaviour’ outperforms humans
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The Brunswik lens model

 Valuable insights (continued)

 the stability (consistency) of human judgment over time
 the degree of insight decision makers possess regarding their pattern
of use of data
 the degree of consensus displayed in a variety of group decision tasks
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The Brunswik lens model

 The model usually has good predictive powers

 it removes much of the random error due to human things such as
tiredness, illness or distraction

 An important limitation is that it is not a good descriptor of how

people actually make decisions
 so process tracing methods developed
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Process tracing methods

 Provides an explanation about how a decision is

made
 ‘process tracing’ or ‘verbal protocol’
 produces a ‘decision tree’ to represent the decision
process
 ‘classification and regression trees’ (CART)
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Probabilistic judgement

 Useful where initial beliefs about a prediction or evaluation

need to be revised as new data arrives

Posterior odds = Likelihood ratio x Prior odds

 Found use of rules of thumb to simplify complex judgment

tasks
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Lens model studies – the evidence

 accuracy of humans’ predictions of business failure

 model of human behaviour

 information overload literature

 judgement confidence literature

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Process tracing studies – the
evidence

 Brunswik lens models and process tracing style studies are

different technologies with the same objective of modelling
decision processes as completely as possible
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Format and presentation of
financial statements

 Libby (1976) – 3 options for improved decision

making
 changing the presentation and amount of information

 educating decision makers

 replacing decision makers with a model of themselves

or with an ideal cue-weighting model
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Format and presentation of
financial statements

 Little research has been undertaken regarding ideal

presentation formats
 e.g. graphs versus tables
 e.g. colour versus black & white

 Mixed results

 No well developed and tested theory

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Probabilistic judgement studies –
the evidence

 Three rules of thumb (heuristics)

 representativeness
 availability
 anchoring and adjustment

 Expert judgement and rules of thumb

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Probabilistic judgement studies –
the evidence

Representativeness
 When judging the probability that a particular item comes
from a particular population of items, people’s judgement will
be determined by the extent to which the item is
representative of the population
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Probabilistic judgement studies –
the evidence

Availability
 The assessment of the probability of an event is
based on the ease with which instances of that event
come to mind
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Probabilistic judgement studies –
the evidence

Anchoring and adjustment

 An initially given response serves as an anchor, and
other information is used to adjust that response
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Accounting and Behavior

 The techniques adopted and the subsequent interpretation of

reported information are matters of perspective
 Accounting is a direct function of human behavior and activity

 Two-way influence
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What Is Research Design?

Blueprint

Plan

Guide

Framework
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Design in the Research

Process
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Levels of Information

Primary Secondary Tertiary

Sources: Sources: Sources:
Memos Encyclopedias Indexes
Letters Textbooks Bibliographies
Interviews Handbooks Internet
Speeches Magazines search engines
Laws Newspapers
Internal records Newscasts
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Validity and Reliability

• Validity
 A test is valid if it measures what it is supposed to measure.

 If the results of the personality test claimed that a very shy

person was in fact outgoing.

• Reliability
 Reliability is another term for consistency.

 If one person takes the same personality test several times and
always receives the same results, the test is reliable.
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Validity and Reliability
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Validity Determinant

Content

Criterion Construct
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Increasing Content Validity

Literature
Search Content Etc.

Expert Question
Interviews Database
Group
Interviews
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Increasing Construct Validity

New measure of trust

Known measure of trust

Empathy

Credibility
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Judging Criterion Validity

Relevance

Freedom from bias

Criterion
Reliability

Availability
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Reliability Estimates

Stability

Internal
Equivalence
Consistency
11-34
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Reliability Estimates

Stability

Internal
Equivalence
Consistency
11-35
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Reliability Estimates

Stability

Internal
Equivalence
Consistency
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Survey:
Data
Collection
Approach
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Survey:
Communication Approach

Strengths Weaknesses
• Versatility • Error
• Efficiency • Inaccessible
• Geographic coverage populations
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Survey:
Communication Approach

Self- Survey via

Telephone
Administered Personal
Survey
Survey Interview
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Sources of Errors

Measurement
Participant
Questions

Interviewer
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Participant Motivation
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Experiment:
Data
Collection
Approach
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Evaluation of Experiments

Advantages Disadvantages
• Ability to manipulate IV • Artificiality of labs
• Use of control group • Non-representative
• Control of extraneous sample
variables • Expense
• Replication possible • Focus on present and
• Field experiments immediate future
possible • Ethical limitations
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Conducting an Experiment
Specify treatment variables
Specify treatment levels
Control environment
Choose experimental design

Select and assign participants

Pilot-test, revise, and test

Collect data

Analyze data