Managerial communications often contain biased information because of managerial incentives and other influences. A common assumption in the accounting literature is that if investors are aware of managerial biases, they will be able to fully adjust for those known biases when reacting to managerial communications. Drawing on insights from psychology, I experimentally document that investors are not able to fully adjust for known biases in managerial communications--even when investors know the quantitative amount of the manager's bias. Indeed, investors behave contrary to economic theory as they are unable to fully unravel the effects of known biases when rendering judgments about the firm. My study has implications for researchers, regulators, and investors. / text

A reasoner’s beliefs can compromise or inflate the accuracy of their syllogistic judgments when syllogistic content and structure are incongruent or congruent, respectively. An integrated approach to the study of syllogistic reasoning led to the investigation of premise-based belief-content conflict and its impact on belief bias. The belief-content conflict cue attenuated belief bias in incongruent valid and invalid trials, as well as congruent invalid trials. Its efficacy was found to depend on the difficulty level of the syllogism in which it was embedded and the location of its placement. Reaction time analyses were used to guide interpretations about the relative engagement of Systems 1 and 2. The key findings suggested that belief-content conflict activated System 2 for invalid incongruent trials which would otherwise have been processed using low-cost heuristic means due to their inherent difficulty. In contrast, it appeared that in valid trials the cue led to a redirection of System 2 resources such that specialized analytic strategies were applied in incongruent trials preceded by belief-content conflict compared to those lacking this cue. Finally, belief bias was successfully offset by belief-content conflict even in cases of congruency. In congruent invalid trials without this cue participants’ intuitive awareness of the content-structure match appeared to lead to low-cost, belief-based guesses; yet when presented as the major premise this conflict cue appeared to shift System 1 processing away from content and towards structure. Albeit less diligent than System 2 analysis, the shallow consideration of structural features may have been viewed as a safer bet than any shortcut aiming to capitalize on syllogistic content. This set of findings cannot be fully accounted for by the selective scrutiny, misinterpreted necessity, mental models, verbal reasoning, selective processing, or Receiver Operating Characteristics accounts thereby highlighting the need for considering belief-content conflict in future models of belief bias.

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Reasoners who adopt the perspective of another can increase the proportion of logically valid inferences they make (Thompson, Evans, & Handley, 2005). A possible explanation is that shifting perspective promotes analytic reasoning. If this were the case, then shifting perspectives should also reduce the belief-bias effect. Furthermore, strong evidence should be preferred over weak evidence. To test this, 256 participants read twenty-four research descriptions that varied in evidence quality and degree of personal belief content. Participants indicated whether the data supported the researchers hypotheses. Belief bias was reduced when participants evaluated the data from the researchers perspective relative to their own. Evidence strength was an important determining factor in decision-making and it was sensitive to perspective and individual differences.

The belief bias effect – the finding that prior beliefs influence judgments of logic and evidence – has been a topic of much empirical investigation in both deductive and causal reasoning. However, to date, no research has examined the degree to which such biases are the result of common or distinct mechanisms in these two domains. By using common scales of measurement, I examine the degree to which individuals show common biases in these two domains in two experiments. Surprisingly, although the belief bias effect was observed in both paradigms, biases in one domain were unreliably associated with biases in the other domain. Experiment 2 included 6 measures of individual differences in an attempt to uncover the observation of differential biases in these domains. Dogmatism was found to be the single most predictive measure of belief bias, but only in deductive reasoning. These data are discussed in terms of dual process theories of reasoning.

The belief bias effect – the finding that prior beliefs influence judgments of logic and evidence – has been a topic of much empirical investigation in both deductive and causal reasoning. However, to date, no research has examined the degree to which such biases are the result of common or distinct mechanisms in these two domains. By using common scales of measurement, I examine the degree to which individuals show common biases in these two domains in two experiments. Surprisingly, although the belief bias effect was observed in both paradigms, biases in one domain were unreliably associated with biases in the other domain. Experiment 2 included 6 measures of individual differences in an attempt to uncover the observation of differential biases in these domains. Dogmatism was found to be the single most predictive measure of belief bias, but only in deductive reasoning. These data are discussed in terms of dual process theories of reasoning.

Reasoners who adopt the perspective of another can increase the proportion of logically valid inferences they make (Thompson, Evans, & Handley, 2005). A possible explanation is that shifting perspective promotes analytic reasoning. If this were the case, then shifting perspectives should also reduce the belief-bias effect. Furthermore, strong evidence should be preferred over weak evidence. To test this, 256 participants read twenty-four research descriptions that varied in evidence quality and degree of personal belief content. Participants indicated whether the data supported the researchers hypotheses. Belief bias was reduced when participants evaluated the data from the researchers perspective relative to their own. Evidence strength was an important determining factor in decision-making and it was sensitive to perspective and individual differences.

Dual Processing theory proposes that the ability to over ride associative (System 1) in favour of analytical (System 2) processed in deductive reasoning may depend on inhibitory control. The present study applies this association to a spatial reasoning task by adapting a mental rotation task to a multichoice format including System 1 (mirror) and System 2 (rotated image) responses. Fifty undergraduate volunteers from the University of Canterbury responded to a Stroop task as a measure of inhibitory control that was compared with System 1 and System 2 responding from a spatial and a deductive reasoning task. It was expected that people with weaker inhibitory potential would make more System 1 and fewer System 2 responses in both deductive and visual-spatial reasoning tasks. Contrary to expectation System 2 responding dominated for both tasks and correlations between both reasoning tasks and measures of inhibitory control were non-significant. The differing idiosyncratic demands of each task may have obscured any common variables associated with inhibitory control. This research initiated a test for the presence of System 1 and System 2 in spatial reasoning.

Dual Processing theory proposes that the ability to over ride associative (System 1) in favour of analytical (System 2) processed in deductive reasoning may depend on inhibitory control. The present study applies this association to a spatial reasoning task by adapting a mental rotation task to a multichoice format including System 1 (mirror) and System 2 (rotated image) responses. Fifty undergraduate volunteers from the University of Canterbury responded to a Stroop task as a measure of inhibitory control that was compared with System 1 and System 2 responding from a spatial and a deductive reasoning task. It was expected that people with weaker inhibitory potential would make more System 1 and fewer System 2 responses in both deductive and visual-spatial reasoning tasks. Contrary to expectation System 2 responding dominated for both tasks and correlations between both reasoning tasks and measures of inhibitory control were non-significant. The differing idiosyncratic demands of each task may have obscured any common variables associated with inhibitory control. This research initiated a test for the presence of System 1 and System 2 in spatial reasoning.

The overall objective of this thesis was to test the Default Interventionist (DI) account of belief-bias in human reasoning using the novel methodology introduced by Handley, Newstead & Trippas (2011). DI accounts focus on how our prior beliefs are the intuitive output that bias our reasoning process (Evans, 2006), whilst judgments based on logical validity require effortful processing. However, recent research has suggested that reasoning on the basis of beliefs may not be as fast and automatic as previous accounts claim. In order to investigate whether belief based judgments are resource demanding we instructed participants to reason on the basis of both the validity and believability of a conclusion whilst simultaneously engaging in a secondary task (Experiment 1 - 5). We used both a within and between subjects design (Experiment 5) examining both simple and complex arguments (Experiment 4 – 9). We also analysed the effect of incorporating additional instructional conditions (Experiment 7 – 9) and tested the relationships between various individual differences (ID) measures under belief and logic instruction (Experiment 4, 5, 7, 8, & 9). In line with Handley et al.’s findings we found that belief based judgments were more prone to error and that the logical structure of a problem interfered with judging the believability of its conclusion, contrary to the DI account of reasoning. However, logical outputs sometimes took longer to complete and were more affected by random number generation (RNG) (Experiment 5). To reconcile these findings we examined the role of Working Memory (WM) and Inhibition in Experiments 7 – 9 and found, contrary to Experiment 5, belief judgments were more demanding of executive resources and correlated with ID measures of WM and inhibition. Given that belief based judgments resulted in more errors and were more impacted on by the validity of an argument the behavioural data does not fit with the DI account of reasoning. Consequently, we propose that there are two routes to a logical solution and present an alternative Parallel Competitive model to explain the data. We conjecture that when instructed to reason on the basis of belief an automatic logical output completes and provides the reasoner with an intuitive logical cue which requires inhibiting in order for the belief based response to be generated. This creates a Type 1/Type 2 conflict, explaining the impact of logic on belief based judgments. When explicitly instructed to reason logically, it takes deliberate Type 2 processing to arrive at the logical solution. The engagement in Type 2 processing in order to produce an explicit logical output is impacted on by demanding secondary tasks (RNG) and any task that interferes with the integration of premise information (Experiments 8 and 9) leading to increased latencies. However the relatively simple nature of the problems means that accuracy is less affected. We conclude that the type of instructions provided along with the complexity of the problem and the inhibitory demands of the task all play key roles in determining the difficulty and time course of logical and belief based responses.