Evaluation of auditor decisions: Hindsight bias effects and the expectation gap

John C. Anderson, David Lowe, Philip Reckers

Research output: Contribution to journalArticle

42 Scopus citations

Abstract

Hindsight bias is said to exist when individuals overestimate the extent to which an outcome could have been anticipated prior to its occurrence. Ex post, litigants tend to blame auditors in hindsight for failing to foresee and anticipate subsequent financial problems of their audit clients. However, it is not known whether the blame attributed in hindsight is due to hindsight bias or other factors such as the generally hypothesized user-preparer expectation gap. A behavioral experiment was conducted with 65 federal and state general jurisdiction judges and 58 auditors from one of the Big-Six public accounting firms. Results indicate that judges provided significantly lower evaluations of auditors' performance than did auditors, reflective of an expectation gap. Of greater importance, our results reveal that evaluative judgments of auditors' performance are subject to hindsight bias. Additional analysis revealed that our results are consistent with a cognitive interpretation of hindsight bias.

Original languageEnglish (US)
Pages (from-to)711-737
Number of pages27
JournalJournal of Economic Psychology
Volume14
Issue number4
DOIs
StatePublished - Dec 1993

ASJC Scopus subject areas

  • Applied Psychology
  • Sociology and Political Science
  • Economics and Econometrics

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