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

John C. Anderson, David Lowe, Philip Reckers

Research output: Contribution to journalArticle

40 Citations (Scopus)

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 - 1993

Fingerprint

trend
evaluation
audit
performance
jurisdiction
firm
interpretation
Hindsight bias
Expectations gap
Evaluation
Auditors
experiment
Factors
Audit
User expectations
Experiment
Public accounting firms
Jurisdiction

ASJC Scopus subject areas

  • Marketing
  • Economics and Econometrics
  • Applied Psychology

Cite this

Evaluation of auditor decisions : Hindsight bias effects and the expectation gap. / Anderson, John C.; Lowe, David; Reckers, Philip.

In: Journal of Economic Psychology, Vol. 14, No. 4, 1993, p. 711-737.

Research output: Contribution to journalArticle

@article{3fc3211dbebe4dac8fee8c454500ce8d,
title = "Evaluation of auditor decisions: Hindsight bias effects and the expectation gap",
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.",
author = "Anderson, {John C.} and David Lowe and Philip Reckers",
year = "1993",
doi = "10.1016/0167-4870(93)90018-G",
language = "English (US)",
volume = "14",
pages = "711--737",
journal = "Journal of Economic Psychology",
issn = "0167-4870",
publisher = "Elsevier",
number = "4",

}

TY - JOUR

T1 - Evaluation of auditor decisions

T2 - Hindsight bias effects and the expectation gap

AU - Anderson, John C.

AU - Lowe, David

AU - Reckers, Philip

PY - 1993

Y1 - 1993

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=0001515344&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0001515344&partnerID=8YFLogxK

U2 - 10.1016/0167-4870(93)90018-G

DO - 10.1016/0167-4870(93)90018-G

M3 - Article

AN - SCOPUS:0001515344

VL - 14

SP - 711

EP - 737

JO - Journal of Economic Psychology

JF - Journal of Economic Psychology

SN - 0167-4870

IS - 4

ER -