Debiasing the curse of knowledge in audit judgment

This research uses an experimental methodology to examine the "curse of knowledge" in judgment and the extent to which it is mitigated by accountability, experience, and counterexplanation. The curse of knowledge occurs when individuals are unable to (appropriately) disregard information already processed. Important audit implications of the curse of knowledge arise in going concern evaluation and analytical review. Experiments 1 and 2 examine these two contexts with both auditors and MBA students. Results show significant curse of knowledge effects among both auditors and MBA students. These effects are not mitigated by accountability, consistent with Kennedy's (1993) debiasing framework. A third experimentfinds that counterexplanation (explaining whya particularoutcome might not occur) does eliminate the curse of knowledge.

[1]  R. Nickerson,et al.  Are people's estimates of what other people know influenced by what they themselves know? , 1987 .

[2]  Jane Kennedy,et al.  Debiasing Audit Judgment With Accountability - A Framework And Experimental Results , 1993 .

[3]  B. Fischhoff,et al.  On the Psychology of Experimental Surprises. , 1977 .

[4]  D. Eric Hirst,et al.  Audit Analytical Procedures: A Field Investigation* , 1996 .

[5]  Terry Connolly,et al.  Hindsight bias: Self-flattery or cognitive error? , 1990 .

[6]  Lynn Hasher,et al.  I knew it all along: or, did I? , 1981 .

[7]  Hun-Tong Tan,et al.  Effects Of Expectations, Prior Involvement, And Review Awareness On Memory For Audit Evidence And Judgment , 1995 .

[8]  M. Lipe.  COUNTERFACTUAL REASONING AS A FRAMEWORK FOR ATTRIBUTION THEORIES , 1991 .

[9]  B. Fischhoff,et al.  Perceived Informativeness of Facts. , 1977 .

[10]  A. Tesser,et al.  Motivational interpretations of hindsight bias: An individual difference analysis , 1983 .

[11]  Daniel W. McAllister,et al.  The Contingency Model for the Selection of Decision Strategies: An Empirical Test. , 1978 .

[12]  R. Hogarth,et al.  Order effects in belief updating: The belief-adjustment model , 1992, Cognitive Psychology.

[13]  P. Tetlock.  Accountability: The neglected social context of judgment and choice. , 1985 .

[14]  Gordon Wood,et al.  The knew-it-all-along effect. , 1978 .

[15]  M. F. Davies,et al.  Reduction of hindsight bias by restoration of foresight perspective: Effectiveness of foresight-encoding and hindsight-retrieval strategies. , 1987 .

[16]  Michel Loève,et al.  Probability Theory I , 1977 .

[17]  M. Leary.  The Distorted Nature of Hindsight , 1981 .

[18]  Robert Libby,et al.  Expertise And Auditors Judgments Of Conjunctive Events , 1986 .

[19]  Stephen A. Butler.  Application Of A Decision Aid In The Judgmental Evaluation Of Substantive Test Of Details Samples , 1985 .

[20]  Philip M. J. Reckers,et al.  The Effects of Hindsight Bias on Jurors' Evaluations of Auditor Decisions* , 1994 .

[21]  R. Hastie,et al.  Hindsight: Biased judgments of past events after the outcomes are known. , 1990 .

[22]  G Gigerenzer,et al.  Hindsight bias: An interaction of automatic and motivational factors? , 1988, Memory & cognition.

[23]  P. Tetlock.  Accountability: A social check on the fundamental attribution error. , 1985 .

[24]  P. Tetlock.  Accountability and the perseverance of first impressions. , 1983 .

[25]  Jane L. Reimers,et al.  The effect of outcome knowledge on auditors' judgmental evaluations , 1992 .

[26]  Thomas Kida,et al.  Heuristics and biases: Expertise and task realism in auditing. , 1991 .

[27]  P. Tetlock,et al.  Accountability: a social magnifier of the dilution effect. , 1989, Journal of personality and social psychology.

[28]  Robert Libby,et al.  Incentives, Effort, And The Cognitive-Processes Involved In Accounting-Related Judgments , 1992 .

[29]  B. J. Winer.  Statistical Principles in Experimental Design , 1992 .

[30]  William R. Kinney,et al.  Expectation-Formation Guidance in the Auditor's Review of Interim Financial Information , 1995 .

[31]  Robert H. Ashton,et al.  Pressure And Performance In Accounting Decision Settings - Paradoxical Effects Of Incentives, Feedback, And Justification , 1990 .

[32]  B. Fischhoff,et al.  I knew it would happen: Remembered probabilities of once—future things , 1975 .

[33]  Reid Hastie,et al.  Hindsight and Causality , 1991 .

[34]  George Loewenstein,et al.  The Curse of Knowledge in Economic Settings: An Experimental Analysis , 1989, Journal of Political Economy.

[35]  Thomas Kida,et al.  The Impact of Hypothesis-Testing Strategies on Auditors' Use of Judgment Data , 1984 .

[36]  T. Buchman.  An effect of hindsight on predicting bankruptcy with accounting information , 1985 .

[37]  Ken T. Trotman,et al.  The review process as a control for differential recall of evidence in auditor judgments , 1993 .