In this study, I examine the effects of audit guidance and estimation uncertainty on auditors’ confirmation bias and professional skepticism when evaluating fair value estimates. Fair value estimation is becoming more prevalent in financial reporting frameworks, and regulators warn that fair value estimation presents higher risk of material misstatement when greater judgment in estimation is involved. In addition recent evidence from the Public Company Accounting Oversight Board (PCAOB) indicates that some auditors may not be exercising sufficient professional skepticism when performing audit procedures in higher risk areas of the audit. Martin et al. (2006) suggest that it may be the audit standards themselves that orient auditors toward biased evaluation of management’s estimates, suggesting that such directional audit guidance leads to confirmation bias. Further, it is possible that because of auditors’ intolerance for ambiguity, that a greater degree of estimation uncertainty exacerbates the bias. Thus, I examine whether directional audit guidance (e.g., support management’s estimate, and oppose management’s estimate) versus non-directional audit guidance (e.g., develop own estimate) affects auditors’ confirmation bias differentially under varying degrees of uncertainty (e.g., low vs. high), and the extent to which this bias increases or decreases professional skepticism. The results show that auditors exhibit the greatest confirmation bias when they are directed to oppose versus support management’s estimate or generate their own estimate, and that this bias increases the degree of professional skepticism exercised by auditors. Further, the greatest extent of confirmation bias resulted when auditors were directed to oppose management’s estimate and estimation uncertainty was high. This study sheds light on the effects of directional versus non-directional audit guidance in the presence of uncertainty and should be informative to standard setters and practitioners as they press forward in issuing new audit guidance related to the evaluation of fair value estimates.

This study examines the effect of motivation on political selective exposure and selective perception using an online experiment. Studies have found that though people have a preference for like-minded political information over counter-attitudinal information, they do not avoid counter-attitudinal political information altogether (Garrett, 2009; Garrett, Carnahan, & Lynch, 2011; Stroud, 2008). This study examines under what conditions people are likely to expose themselves to more like-minded information than counter-attitudinal information and under what conditions people are likely to seek out more counter-attitudinal information than like-minded information. Based on the theory of motivated reasoning and Hart et al. (2009)'s model, I proposed a model that explained selective exposure and selective perception based on motivation. Defense motivation, the motivation to hold attitude-consistent cognitions with one's original attitudes, beliefs, or behaviors, was predicted to increase selective exposure and selective perception. Accuracy motivation, the motivation to arrive at the correct conclusion, was predicted to reduce selective exposure and selective perception. Finally, information utility motivation, the motivation to choose information that has the highest utility, was predicted to reduce selective exposure when counter-attitudinal information was equally useful as attitude-consistent information, but increase selective exposure when attitude-consistent information was more useful than counter-attitudinal information. In both cases, it was predicted that the selective perception pattern would not be changed. The study also tested the additive effect of the three motivations and examined which motivation can override other motivations in determining selective exposure and selective perception. Results showed that accuracy motivation was effective in reducing selective exposure for both strong partisans and those who were not strong partisans. Accuracy motivation can override defense motivation in affecting selective exposure. Information utility alone, defense motivation alone, and the combination of the three motivations produced mixed results. Accuracy motivation was effective in reducing selective perception for those who were not strong partisans. The link between selective exposure and selective perception was not found.

Group commitments such as partisanship and religion can bias the way individuals seek information and weigh evidence. This psychological process can lead to distorted views of reality and polarization between opposing social groups. Substantial research confirms the existence and persistence of numerous identity-driven divides in society, but means of attenuating them remain elusive. However, because identity-protective cognition is driven by a need to maintain global and not domain specific integrity, researchers have found that affirming an unrelated core aspect of the self can eliminate the need for ego defense and result in more evenhanded evaluation. This study proposes a competing intervention. Individuals possess numerous social identities that contextually vary in relative prominence; therefore a different means to unbiased cognition may be to make many social identities salient simultaneously, reducing influence of any potentially threatened identity. This may also reduce selective exposure to congenial information, which has not been found with affirmation. This study also advances research on the phenomenon of selective exposure by considering individuals’ interpersonal networks in information search. Because networks are not static, and are instead contextually activated, inducing a more complex representational structure of the self may broaden the set of contacts from whom individuals seek information. The bias-mitigative potential of self-affirmation and social identity complexity is examined here in a series of dispute contexts — two partisan, one religious — over a mining spill, an advanced biofuels mandate, and gene editing technology. Results from the three experiments (total N = 1,257) show modest support for social identity complexity reducing group-alignment of beliefs, behavior, and information search, while affirmation failed to reduce, and in some cases increased, group alignment.

abstract: Accounting estimates are developed in a bottom-up fashion; subordinates generate estimates that are reviewed by managers. The anchoring heuristic suggests managers may be highly influenced by subordinates’ initial estimates. However, motivated reasoning theory predicts that reporting incentives will bias managers’ review in favor of estimates that are incentive consistent, and managers will selectively attend to information that supports their preferred conclusion, including their perceptions of the subordinate. Using experimental methods I manipulate the consistency of the subordinate estimate with management reporting incentives, and the narcissistic description of the subordinate. Consistent with motivated reasoning theory, I find that managers anchor on incentive consistent subordinate estimates, regardless of subordinate narcissism, but anchor less on incentive inconsistent subordinate estimates, especially when the estimate comes from a narcissistic subordinate. I also find evidence that managers believe narcissistic subordinates act strategically in their own self-interest, and selectively attend to this belief to adjust away from incentive inconsistent subordinate estimates, but not incentive consistent subordinate estimate. My results reveal two potential weaknesses in the management review process: susceptibility to subordinate anchors, and bias created by reporting incentives. / Dissertation/Thesis / Doctoral Dissertation Accountancy 2016

In the present article, the authors evaluate the psychological effects of the “illicit test”. To do this, they start delimiting their concept, and then analyze if it has any influence on the judge when resolving a case. Based on psychological considerations, in particular, the so-called “motivated reasoning” theory and the “motivated justice hypothesis”, they evaluate by an empirical study if the judges take this test into account when deciding, despite being legally bound to Not do it. In addition, they propose some mechanisms that could be used, both by litigants and by legal systems, to mitigate the effects of illicit veidence. / En el presente artículo, los autores evalúan los efectos psicológicos de la “prueba ilícita”. Para ello, parten de delimitar su concepto, para luego analizar si esta tiene alguna influencia en el juez al momento de resolver un caso. Partiendo de consideraciones psicológicas, en concreto, la llamada teoría del “razonamiento motivado” y la “hipótesis de la justicia motivada”, evalúan mediante un estudio empírico si los jueces toman en cuenta dicha prueba al momento de decidir, pese a estar obligados legalmente a no hacerlo. Adicionalmente, proponen algunos mecanismos que podrían ser empleados, tanto por los litigantes como por los sistemas jurídicos, para mitigar los efectos de la prueba ilícita.

Recently, investors have asserted that firms' loss contingency disclosures are not adequate to allow them to assess the likelihood of material losses due to litigation (i.e., litigation risk), and a debate has developed over whether the threshold for disclosure should be lowered to provide investors with more information relating to litigation. Using an experiment, I investigate two unintended consequences of lowering a disclosure threshold, as the FASB has recently proposed. First, I find that adding low probability lawsuits to the disclosure of reasonably possible lawsuits lowers prospective investors' perceptions of litigation risk relating to the disclosure, even though more lawsuits are disclosed. Second, lowering the threshold allows firms to portray the entire disclosure opportunistically, diverting attention from higher probability to lower probability lawsuits. I find evidence that firms can use such an opportunistic presentation under a lower threshold to their advantage. Specifically, prospective investors' and even short investors' perceptions were just as favorable to the firm as long investors' when the disclosure threshold was lower and firms adopted an opportunistic disclosure strategy. Thus, my findings suggest that the FASB's proposal to require disclosure of lower probability loss contingencies may have unintended consequences for investors' perceptions of firms' loss exposure.

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