Economics at your fingertips  

Uncertain litigation cost and seller behavior: Evidence from an auditing game

Ping Zhang, Bryan K. Church and Lucy Ackert ()

No 98-17, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper reports the results of two experiments, each consisting of six sessions, designed to investigate difficulties that arise in estimating expected litigation costs in an auditing game. In each experimental session, the game consists of a series of periods in which sellers submit sealed offers to computerized buyers and, if hired, choose an effort level (low or high). The effort level affects the certain (direct) and uncertain (litigation) costs of performing the engagement. Across the two experiments, we vary the uncertainty surrounding the determination of the expected litigation cost. Our results strongly suggest that cognitive limitations hinder sellers' abilities to estimate total expected litigation costs. Across both experiments we observe a nontrivial number of suboptimal effort choices. Moreover, as the uncertainty of determining the expected litigation cost increases, the frequency of observed fee offers below the total expected cost of an engagement increases markedly.

Keywords: Accounting (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link) (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found ( [301 Moved Permanently]-->

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:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Series data maintained by Elaine Clokey ().

Page updated 2018-03-20
Handle: RePEc:fip:fedawp:98-17