Evidence of Choice Avoidance in Capital Investment Judgments

Abstract

Evaluating capital investment decisions is an important function of managerial accountants. However, there is anecdotal evidence that managers avoid making decisions or delay decisions, which is costly in terms of time, effort and lost opportunities. Prior research has shown that choice avoidance among non-professionals making personal decisions is associated with having to choose between alternatives with very different features or that require tradeoffs of very important goals (choice difficulty). It is unclear, however, whether experienced managers, utilizing the analytical decision tools at their disposal, would respond in the same way as non-professionals when making accounting decisions. Hence, this study examines whether increased choice difficulty increases negative affect in the capital investment decision-making process and, as a result, the tendency of a manager to avoid choice even when analytical decision tools are used. In an experiment with one hundred twenty executives, participants facing more difficult decisions reported they felt more worried, nervous, uneasy and anxious and had a greater desire to postpone making the decision than participants in a control group. Participants provided with a decision aid designed to help them focus their cognitive effort reported a lower desire to postpone making the decision than participants in the choice difficulty conditions without the decision aid. I conclude by discussing the result's implications for managers and accountants.

Keywords: Choice avoidance, Negative affect, Decision difficulty, Capital investment decisions

JEL Classification: M40, M46, G31