How to de-bias investment judgements–unpacking bias and possible remedies in a capital investment context

Andreas Scherm, Bernhard Hirsch, Matthias Sohn and Miriam Maske

Journal of Applied Accounting Research, 2022, vol. 23, issue 5, 1005-1023

Abstract: Purpose - Research on biases in investment decision-making is indubitably important; however, studies in this context are relatively scarce. Unpacking bias has received attention in the psychological literature yet very little attention from management accounting research. This bias suggests that the perceived probability that an event will occur generally increases when the event's description is unpacked into a disjunction of subevents. The authors hypothesize that for a capital investment decision context, managers' judgement of the probability of a future event depends on whether the event is described as one packed event or is unpacked into several disjoint subevents. Additionally, the authors propose that altering the format of the description of an event's occurrence from percentage values to relative frequencies reduces unpacking bias. Design/methodology/approach - To test the study’s hypotheses, the authors conducted two experiments based on a 3 × 2 mixed experimental design in which manager participants were asked to estimate the failure probabilities of technical systems in the context of an investment decision. Findings - The authors provide evidence that unpacking bias occurs in an investment scenario, which can be characterized as a high-stakes decision context. Changing the format in which probabilities are presented from percentage values to relative frequencies significantly reduces the bias. Research limitations/implications - Additional instructions did not further reduce unpacking bias. Practical implications - For investment decisions under uncertainty, performance indicators in management templates should be presented in relative frequencies to improve managerial decision-making. The fact that the authors could not show an additional effect of instructions in management accounting reports indicates that it is challenging for management accountants to reduce the biased decision-making of managers by “teaching” them through the provision of instructions. Originality/value - The authors contribute to accounting research by illustrating unpacking bias and by deriving a debiasing mechanism in a capital investment decision context.

Keywords: Instructions; Investment decision; Support theory; Unpacking bias (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jaarpp:jaar-01-2021-0005

DOI: 10.1108/JAAR-01-2021-0005

Access Statistics for this article

Journal of Applied Accounting Research is currently edited by Associate Professor Orthodoxia Kyriacou

More articles in Journal of Applied Accounting Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().