Deck 13: Behavioural Research

Question 1

Research has found that the use of rules of thumb such as representativeness,availability,and anchoring and adjustment have improved the quality of decision making for auditors and accountants."

Answer 1

False

Question 2

The statement that is correct is:

A)Human judgement theory is particularly relevant to auditing
B)Contracting theory in accounting has been eclipsed in recent years by behavioural research
C)The Brunswik lens model was first developed by accounting researchers and then was later used by other disciplines
D)All of the statements are correct

Answer 2

A

Question 3

Which research question would not be answered using behavioural accounting research?

A)How does the stock market react to the disclosure of upward asset revaluations?
B)How does a bank loan officer decide whether to grant a loan to a client?
C)How does an auditor judge the riskiness of an audit client?
D)What are the most useful accounting disclosures for users of financial reports?

Answer 3

A

Question 4

The consequence of anchoring and adjustment is that there is a possibility of insufficient adjustment when a circumstance changes.

Question 5

Research shows that investors react as though they perceive auditor independence as impaired when auditors receive non-audit service revenue from their audit clients even if actual auditor independence is not affected.

Question 6

The higher the beta in the Brunswik lens regression model,the more important the information cues will be to a person in making decisions.

Question 7

Behavioural accounting research is considered important to economic practitioners for the following reasons,except:

A)The findings of BAR can lead to efficiencies in the work practices of accountants and other professionals
B)BAR can provide valuable insights into the ways different types of decision makers react to particular items of accounting information
C)BAR can potentially provide useful information to accounting regulators
D)Other accounting research schools such as capital market and agency theory are not useful for accounting information research

Question 8

The Brunswik lens model always outperforms the process tracing model in any decision-making scenario.

Question 9

According to the literature it does not appear that accounting information presentation affects decision-making.

Question 10

Which of these accounting research types can be called 'normative' research?

A)Behavioural research
B)Capital market research
C)Agency theory
D)None can be called normative research

Question 11

The statement that is true with respect to the Brunswik lens model is:

A)The results of research using this model can be used to train decision makers to change the weightings they give to different information cues
B)It has provided insights into the stability of human judgement over time
C)It is not as good as process tracing methods at predicting the event of interest
D)A and B

Question 12

Which of these is not a model relied heavily on in applying human judgement theory to accounting issues?

A)The Brunswik lens model
B)The process tracing model
C)The efficient market model
D)The probabilistic judgement model

Question 13

In behavioural research a model used in situations where initial predictions need to be adjusted in light of additional information is:

A)The Brunswik lens model
B)Process tracing
C)The probabilistic judgement paradigm
D)None of the above

Question 14

One of the limitations of using CART models is that when there is lot of data available for analysis it becomes difficult to derive simple rules to train other analysts.

Question 15

One of the limitations of BAR is that it is not useful for revealing the systematic errors made by all decision makers in specific contexts.

Question 16

Consider the following linear equation model regarding an accountant's judgements regarding the likelihood of business failure:
Likelihood of Insolvency/Solvency= constant + 0.1 Net profit + 0.3 Cash flow + 0.15 Acid test ratio + 0.25 Debt to Equity ratio + other information cues + error
According to the model which of the following statements is correct?

A)The accountant considers the debt to equity ratio to be a relatively more important information cue regarding insolvency than the cash flow
B)The Acid test ratio has a higher beta weight than net profit
C)The accountant will only consider net profit,cash flow,acid test ratios and debt to equity ratios when making judgements on business solvency
D)The acid test ratio is the least important information cue for the accountant in making his solvency judgement

Question 17

The statement that is true is:

A)The objective of behavioural accounting research (BAR)is to explain why people behave as they do
B)Capital market research investigates how information is actually processed by market participants
C)BAR,capital market research,and agency theory are normative accounting theories
D)Agency theory makes no assumptions about people's behaviours

Question 18

Behavioural accounting research is similar to research using agency theory in that it focuses on individual managers and firms and is derived from the discipline of economics.

Question 19

Libby and Zimmer found a negative correlation between accuracy of judgement and confidence.

Question 20

One of the limitations of the Brunswick lens model is that decision makers often have difficulty explaining all the steps they go through.

Question 21

Explain and discuss some of the findings concerning behavioural research in the field of auditing.

Question 22

The heuristic (rule of thumb)'availability' can be described as:

A)A general judgement process in which an initially generated or given response serves as an anchor,and other information is used to adjust that response
B)Judging the probability that a particular item comes from a particular population by determining the extent to which the item is representative of the population
C)The assessment of the probability of an event based on the ease with which instances of that event come to mind
D)None of the above

Question 23

The term 'posterior odds' in Bayes' theorem represents:

A)Initial probability
B)The amount by which prior expectations should be revised
C)Base rate
D)Revised probability

Question 24

Briefly explain the Brunswik lens model and what factors make it a better predictor of the event of interest than the person from whom the model was derived.

Question 25

It is not true regarding research conducted using the Brunswik lens model that:

A)Replacing people with predictive models does not increase predictive accuracy
B)It is the subject's choice of information,not his or her processing of the cues,that limits accuracy
C)Expert and non-expert subjects are over-confident of their ability in specific judgement tasks
D)All of the above are not true

Question 26

According to the judgement confidence literature which of the following is not the factor that causes overconfidence?

A)The limited nature of feedback in many instances
B)The tendency for people not to admit that they make mistakes
C)The interdependency of actions and outcomes
D)The tendency of humans to seek out and overweigh positive feedback

Question 27

'Findings reveal that auditors and others use the same rules of thumb as have been prevalent in research in psychology,although often to a lesser extent.The rules of thumb of representativeness,availability,and anchoring and adjustment seem to be adopted in auditing and other business contexts in order to simplify complex judgement tasks and alleviate limitations in the cognitive processes of humans.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.476.
Explain the meaning of each of the three rules of thumb referred to in the quotation and describe and summarise the findings of one accounting or auditing research study that has been carried out in relation to one of the rules of thumb referred to above.

Question 28

Which of these is not an option suggested by Libby for improving decision making?

A)Replacing decision makers with a model of themselves
B)Prescribing normative decision rules for repetitive decision making tasks
C)Educating decision makers
D)Changing the presentation and amount of information

Question 29

The use of the Brunswik lens model has led to the discovery of the following insights,except:

A)The stability of human judgement over time
B)The circumstances under which a model of human behaviour outperforms humans
C)The step-by-step process of decision-making
D)Patterns of cue use evident in various tasks

Question 30

With respect to the probabilistic judgement model the true statement is:

A)Research suggests that while the model is logical,humans do not appear to apply statistics intuitively
B)The revised probability in light of additional evidence = the original belief multiplied by the amount by which prior expectations should be revised
C)It is normatively correct to revise your initial beliefs by applying Bayes's theorem
D)All of the above are true

Question 31

The statement concerning research on expert judgement that is correct is:

A)Audit experts have better recall,integrative abilities and error frequency learning ability than do novices
B)Human's both short and long term memories have very limited capacity
C)Auditors do not exhibit evidence of the use of rules of thumb
D)All of the statements are correct

Question 32

Discuss the limitations of behavioural accounting research.

Question 33

The rule of thumb that refers to a general judgement process in which an initially generated or given response serves as an anchor and other information is used to adjust that response is:

A)Representativeness
B)Anchoring and adjustment
C)Availability anchoring and adjustment
D)User friendliness

Question 34

Behavioural accounting research does have limitations,which of the following is not a limitation of this research?

A)It lacks application in the real world
B)It has resulted in many conflicting results
C)The research settings used are often unrealistic
D)It lacks a unified underlying theory

Question 35

Accounting is a function of human behaviour and activity.J.Godfrey,et el,'Accounting Theory',7^th Ed.p.471.Discuss.

Question 36

Which of these is true of the research evidence obtained in the literature regarding the presentation of financial information?

A)Decision makers are readily able to use information presented in a graphical format
B)On the whole,research evidence does not suggest that accounting report formats influence decision-making
C)The question the decision maker is answering and the form of presentation interactively affect performance
D)The theory regarding which forms of information presentation are most appropriate is well developed