Auditors' Hypothesis Testing in Diagnostic Inference Tasks

Posted: 5 Aug 1999

See all articles by Clifton E. Brown

Clifton E. Brown

University of Illinois at Urbana-Champaign

Mark E. Peecher

University of Illinois at Urbana-Champaign; University of Illinois College of Law

Ira Solomon

University of Illinois at Urbana-Champaign

Abstract

This paper addresses auditors? hypothesis testing during diagnostic inference. Cognitive steps involved in diagnostic inference include mental-representation formation, hypothesis generation, and hypothesis testing (Einhorn [1976]). Hypothesis testing can be decomposed further into specifying questions (or tests), interpreting answers (or feedback), and revising hypotheses (Libby [1995]). Within two main experiments we study the soundness of, and how incentives influence, auditors? questions specification. Four types of unsound reasoning are considered: confirmation and disconfirmation proneness (i.e., unwarranted hypothesis retention and abandonment), information proneness (i.e., significant valuation of evidence independent of its expected diagnosticity), and affirmation proneness (i.e., overvaluations of "yes" versus "no" answers, holding constant their expected diagnosticity).

JEL Classification: M49, C91

Suggested Citation

Brown, Clifton E. and Peecher, Mark E. and Solomon, Ira, Auditors' Hypothesis Testing in Diagnostic Inference Tasks. Available at SSRN: https://ssrn.com/abstract=173510

Clifton E. Brown

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
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Mark E. Peecher (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Gies College of Business
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Champaign, IL 61820
United States
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University of Illinois College of Law ( email )

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Ira Solomon

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-3808 (Phone)
217-244-0902 (Fax)

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