The Impact of Cognitive Biases on Fraudulent Behavior: The Leeson Case

Kleinman, G. and A. Anandarajan (2011) Inattentional blindness and its relevance to teaching forensic accounting and auditing. Journal of Accounting Education, Vol. 29, No. 1 (2011): 37-49

Posted: 27 Nov 2013

See all articles by Asokan Anandarajan

Asokan Anandarajan

New Jersey Institute of Technology

Gary Kleinman

Montclair State University

Date Written: November 25, 2013

Abstract

Inattentional blindness, also known as perceptual blindness, is the phenomenon of not being able to see things that are actually there. This concept is not covered in traditional accounting classes in general and forensic accounting and auditing in particular. We discuss why forensic accountants and auditors should be aware of inattentional blindness and we show how it may impact the behavior of the individuals investigating and being investigated. We use a video to illustrate how this concept could be meaningfully incorporated into a teaching curriculum with a focus on forensic accounting and auditing. In particular, we provide illustrations of how this video could be used in forensic accounting and auditing classes to heighten student awareness of how "blind spots" could adversely affect the investigation process. We conclude by using the Leeson/Barings scandal (involving the fraud that brought down Barings bank) to illustrate how inattentional blindness can occur in a real-life fraud situation. We also provide additional material showing the relevance of inattentional blindness to the Madoff Ponzi scandal.

Keywords: Fraud, Fraud Diamond, Leeson, Barings, Perception, Cognitive Biases, Auditing, Forensic

JEL Classification: M19, M42, M41, M49

Suggested Citation

Anandarajan, Asokan and Kleinman, Gary, The Impact of Cognitive Biases on Fraudulent Behavior: The Leeson Case (November 25, 2013). Kleinman, G. and A. Anandarajan (2011) Inattentional blindness and its relevance to teaching forensic accounting and auditing. Journal of Accounting Education, Vol. 29, No. 1 (2011): 37-49, Available at SSRN: https://ssrn.com/abstract=2359794

Asokan Anandarajan

New Jersey Institute of Technology ( email )

University Heights
School of Management
Newark, NJ 07102

Gary Kleinman (Contact Author)

Montclair State University ( email )

NJ 07043
United States

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