What is it about?
This article, based on experimental evidence, reports insights into how chief financial officers—experts—and master’s students in accounting—novices—perceive economic rationality within the field of accounting. Four scenarios, covering everyday business situations, are used as a measurement instrument for capturing the experimental subjects’ perception of economic rationality. The findings of the article indicate that the experts and the novices seem to be more economically rational when it comes to dealing with risk and uncertainty related to gains than when dealing with risk and uncertainty associated with losses. Furthermore, the novices tend to deal with the sunk-cost fallacy in a more economically rational way than the experts. From an economically rational point of view, mental accounting should not be particularly important in accounting judgment and decision making, but sometimes the experimental subjects seem to frame the scenario/issue at hand in mental-accounting terms.
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Why is it important?
To strike a balance between the perception of economic rationality and the complexity of real-world business affairs, it may seem that both experts and novices must continue to improve their economic understanding of rational choices in everyday business life. For example, in order to design a comprehensive AI platform for chief financial officers (CFOs) you have to know how CFOs — the experts — perceive economic rationality within the field of accounting. The article “The Quest for Rationality: Chief Financial Officers’ and Accounting Master’s Students’ Perception of Economic Rationality” give you useful information when designing an AI platform.
Perspectives
Many CFOs today recognize that biases can distort reasoning when making judgments and decisions. However, according to Kahneman et al. (June 2011, Harvard Business Review) awareness of the effects of biases has done little to improve the quality of business decisions at either the individual or the organizational level. When the CFO applies his or her own experience, knowledge, and reasoning there is a potential for distortions in judgment that result from cognitive biases. The common wisdom is that accounting robots can take over repetitive work but highly skilled knowledge workers will still be needed. Observations indicate that CFOs tend to be semirational judgment and decision makers (see e.g. enclosed article). Hence, given that these observations are correct, the CFOs tend to need some judgement support. This support could come in many different forms. The technical advancements in robotics may be an accessible road forward. A comprehensive AI platform like Amelia, or a similar, may indicate a conceivable technical solution for support in assessment and decision situations.
Stefan Schiller
Malardalens Hogskola
Read the Original
This page is a summary of: The Quest for Rationality: Chief Financial Officers’ and Accounting Master’s Students’ Perception of Economic Rationality, SAGE Open, April 2017, SAGE Publications,
DOI: 10.1177/2158244017704482.
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