Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method
49 Pages Posted: 16 Feb 2005
Much research over the last 30 years has provided evidence that individuals display accounting fixation; that is, their cognitive process does not appropriately adapt to cross-sectional or temporal differences in an accounting method. This study presents the results of a quasi-experimental test of the hypothesis that cognitive adaptation to a change in accounting method is an ordinal interactive function of three person characteristics: relevant accounting knowledge, general problem-solving ability, and intrinsic motivation to appropriately engage in the decision task. Based on a product-pricing decision task in which participants are provided with product costs reported by two generally-employed product-costing methods (activity-based costing (ABC) and volume-based costing), the results show that the majority of participants did not change their cognitive behavior when there was a change in the costing method. Further, those participants who did adapt to the change in accounting method, and thus avoided accounting fixation, did so by debiasing costs reported by volume-based costing but not by ABC. Finally, these adapters generally exhibited high values for all three of the person characteristics compared to those who did not adapt.
Keywords: Accounting fixation, accounting knowledge
JEL Classification: D82, M41, M46
Suggested Citation: Suggested Citation