An empirical examination of competing theories to explain the framing effect in accounting related decisions
Journal
Behavioral Research in Accounting
Journal Issue
14
Pages
35-64
Date Issued
2002
Author(s)
Abstract
The purposes of this study are to explore framing effects in a managerial accounting decision context and to test the explanatory power of prospect theory and two competing theories, fuzzy-trace theory and probabilistic mental models, on such effects. In Experiment 1, 86 undergraduate students made a choice between two alternatives in a managerial decision problem that illustrates a classic, Asian disease-type business scenario. Results show that the subjects committed the framing effect bias and that prospect theory, fuzzy-trace theory, and probabilistic mental models all predict the bias. In Experiment 2, a business variant of the Asian disease problem was designed to distinguish among the explanatory abilities of these theories in an accounting context. One hundred eighty-five undergraduate students participated in the experiment. Results of Experiment 2 indicate that the fuzzy-trace theory provides additional power to explain the framing effect. Hence, accounting professionals can design better approaches to reporting/presenting financial information that will help managers alleviate the framing effect in decision making.
SDGs
Type
journal article