When do Opportunity Costs Count? Vague Opportunity Costs, Project Completion Stage and Management Accounting Experience
University of Denver - Daniels College of Business
July 22, 2007
AAA 2008 MAS Meeting Paper
Although prior research has established the importance of opportunity costs and identified factors influencing their inclusion in decisional analyses, researchers have overlooked several factors likely to be present in an actual managerial setting. In an experiment, I investigate how two situational factors, vagueness of opportunity cost presentation and stage of project completion, affect individuals' tendency to attend to opportunity costs. I also investigate how attending to opportunity costs affects project continuance judgments and decisions. The two situational factors are examined across two groups of participants with varying levels of management accounting experience. I find that vagueness of opportunity cost presentation and a nearly complete project decrease inexperienced participants' attention to opportunity costs. Experience moderates the effect of these factors as experienced participants attend to opportunity costs despite presence of the two situational factors. The tendency to continue a project is influenced by the number of opportunity costs attended to and experience.
Number of Pages in PDF File: 44
Keywords: Opportunity costs, vagueness, management accounting experience, completion effect, project completion stage
JEL Classification: M40, M46working papers series
Date posted: July 23, 2007
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