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Analyzing the Variance Investigation Decision: The Effects of Outcomes, Mental Accounting, and Framing

Analyzing the Variance Investigation Decision: The Effects of Outcomes, Mental Accounting, and Framing,Marlys Gascho Lipe

Analyzing the Variance Investigation Decision: The Effects of Outcomes, Mental Accounting, and Framing   (Citations: 20)
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SYNOPSIS AND INTRODUCTION: In evaluating the variance investiga- tion decision made by a manager, information ex ante or ex post to the decision may have an impact. Although normative models generally con- sider only ex ante data, research on hindsight or outcome bias has shown that performance evaluations are often affected by decision outcomes. This outcome effect can be explained through the following cognitive links. First, the outcome of the investigation will have an impact on the perceived benefits of the investigation. Second, as posited by decision research on mental accounting, investigation expenditures matched with perceived benefits are framed as costs while those without perceived benefits are framed as losses. Third, evaluators with a cost frame provide higher perfor- mance ratings than those with a loss frame. A series of experiments with students and members of the Institute of Management Accountants demonstrates that managers making variance investigation decisions were evaluated more favorably when investigations revealed problems in the system. This is the well-known outcome effect. Further, the investigation outcome affected the perceived benefits from the investigation and, as predicted by mental accounting, expenditures with perceived benefits were framed as costs while those without perceived benefits were framed as losses. Finally, these frames affected performance evaluation as predicted. Thus, the outcome effect on performance evalua- tion can now be understood within a framework that includes the cognitive impact of mental accounting and framing.
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    • ...) and variance investigation decisions (Lipe, 1993...

    Steve Buchheitet al. A comparison of auditor and non-auditor performance evaluations : Are ...

    • ...In an audit context, the pressure to meet time budgets may lead auditors to forego audit procedures that might otherwise be desirable if they fear that that they will be penalized in the event that a “clean opinion” ultimately resultsThe purpose of the current study is to extend an earlier study by Lipe (1993)...

    Keith T. Joneset al. The effect of audit outcomes on evaluators' perceptions

    • ...It may also be affected by level of performance, for example, successful and unsuccessful (e.g. Lipe 1993), and sex of the rater(s) (e.g...
    • ...Lipe (1993) demonstrates that more benefit is perceived to be received from expenditures incurred by a successful manager relative to expenditure incurred by an unsuccessful manager...
    • ...For example, Lipe (1993) shows that managers receive higher evaluations when their decisions (which are based on the management accounting information) result in some perceived value to the company – a successful performance...
    • ...Lipe 1993) observes a framing effect on these choices...
    • ...The final case is shown in appendix A. The other case was the case used by Lipe (1993) and it described a successful ratee (see appendix B). In the unsuccessful performance condition, the ratee incurred expenses in investigating an inventory shortage...
    • ...case. According to Lipe (1993), the evaluation system under which ratees work may have an effect on their susceptibility to being evaluated based on situations outside of their control...
    • ...The dependent variable was measured on a scale anchored by ‘very poor’ (0) and ‘very good’ (100) (refer appendices A & B). As raters’ perception of the appropriateness of being held responsible for events outside of their control and the frequency of this occurring may affect their evaluation of others (Lipe 1993), these two variables were included as covariates...

    Janne Chung. The Effects of Rater Sex and Ratee Sex on Managerial Performance Evalu...

    • ...information about events or options (Lipe 1993; Joyce and Shapiro 1995; Moon, Keasey, and...

    M. Elizabeth Haywoodet al. Mental Accounting and the Balanced Scorecard

    • ...As Lipe [11] indicates, many discussions of mental accounts suggest that expenditures may be considered to be losses if the perceived benefits derived from those expenditures are not included in the same mental account, and would not be considered as such if the benefits are included in the same account...

    Kathryn Sullivan. CORPORATE MANAGERS' RISKY BEHAVIOR: RISK TAKING OR AVOIDING?

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