How Do Third-Party Examinations Affect Decision Quality? An Interactive Experiment.

• In Event: The effects of regulatory oversight/accountability

Abstract

Using an interactive laboratory experiment, I investigate how third-party examinations affect decision quality for ill-structured tasks. I find that when examiners focus more on the quantity of work performed by the examinees and the examiners document their preliminary assessment of the examinees’ judgment before conversing with them about their work, examiners request examinees perform greater amounts of the procedure they (i.e., examiners) rate as more diagnostic but not more of the procedure rated as less diagnostic. Examiners’ behavior is consistent with confirmation bias. Second, I find that examinees perform the additional work requested after the examination and, over time, learn to perform some of it before. Third, this additional work generally improves examinees’ decision quality. In supplemental analyses, I examine the tradeoffs between performing procedures of differently-rated diagnosticities on decision quality. While results suggest that better decision quality occurs when examinees use a combination of the procedures, examiners seem to over-request—and, thus, examinees over-perform—procedures that examiners rate as more diagnostic. Therefore, while third-party judgment examinations can improve decision quality for ill-structured problems, they may not do so to the greatest extent possible. The theory and results of this study have implications for both accounting and non-accounting areas where judgments on ill-structured problems are evaluated by third parties as well as psychology theory on confirmation biases.

Author

• Brent A Garza, Texas A&M University