The psychology behind good judgment- summary

via The psychology behind good judgment – Journal of Accountancy

 

Academic research in both psychology and accounting reveals numerous shortcomings in the decision making process that can have negative effects on business organization processes as well as social communications.  Although written for CPAs, the basic ideas and concepts described in this article apply and provide valuable guidance to assist unbiased judgement and opinion making in all aspects of life. (i.e; reading a news article, listening to a speech by Donald Trump, Hillary Clinton, or any other politician, watching news oDonald Trump13392275_1162315767158284_4622496157949973223_o.pngn the television, inter-office communication, etc.)
These concepts and judgement processes are especially important to navigate the waters in today’s social media.  Each post, each heading strongly reveals a strong directional bias and depending on the person you apply the ‘halo effect’ to, the bias may discourage you from seeing the truth or being led down an untrue path.  It is also important to consider the views of the news source (their owners) in which your are gathering your information.  Bias is everywhere.

Below, I provide a brief summary of the topic discussed in the article in order to broadly outline the ideas rather than in detail specific to a CPA’s audit.  –Please read the entire article for a more detailed understanding of the material and specific application for CPAs.

This article was written to assist a CPA to understand key concepts about judgment processes and weaknesses to avoid making predictable mistakes and professional blunders, and to maintain professional skepticism.  An understand of these concepts may further assist a person to also be more aware of mistakes made by other.  Also see  “How to Use Psychology to Your Advantage”.

  • DIRECTIONAL GOALS
    • The article lists studies that reveal troublesome findings resulting of bios toward another person’s opinion.
    • Use caution: Be aware of the potential to be directionally motivated.
      • Spend equal effort seeking contradictory information to desired conclusion to reduce unintentionally inherit directional bias.
      • Give equal, objective consideration to all information that may be relevant in a decision-making task.

– See more at: Link to Article

  • HALO EFFECT
    • Psychologists call this phenomenon “exaggerated emotional coherence”.
    • If a person likes someone, they tend to like everything about that person as well as the reverse, if a person dislikes someone they tend to dislike everything about that person.
    • “The halo effect is so strong that once we have developed an initial impression, we begin to assume things about another person’s character that we have not yet observed…”
    • It is a threat to unbiased decision making.
    • Examples are given to prevent the halo effect by using techniques to impartially evaluate evidence.

– See more at: Link to Article

  • EGO DEPLETION
    • Ego depletion dictates that acts of volition (use of will) deplete a limited but renewable self-control resource.
      • “…people are more likely to be dishonest or engage in cheating later in the day than early in the morning. See more at: Link to Article
    • Professional skepticism (an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence)  as well is more susceptible to the effects of ego depletion as skepticism may diminish.  Although not a permanent state, rest, sleep and replenishment appears to renew decision making capacity.

– See studies in the article at: Link to Article

  • RANDOMNESS AND PATTERNS
    • “Randomness” is often misunderstand and people tend to see patterns in data when none actually exist.
    • Examples are provided to assist an audit detect fraud.

-See more at: Link to Article

  • REGRESSION TO THE MEAN
    • “…Evaluating a body of work or an average of outcomes paints a more accurate picture of overall performance.”
    • When measuring performance, a single observation isn’t as reliable as an average of outcomes throughout a time period.

– See more at: Link to Article

 


“How to use psychology to your advantage”

Summary – Tips on how to put psychology to work:

  • Consider your motivation.
  • Don’t rely on first impressions.
  • Replenish your resources.
  • Get educated on randomness and patterns.
  • Evaluate on a long time horizon.

– See entire article at: http://www.journalofaccountancy.com/issues/2016/jun/psychology-behind-good-judgment.html#sthash.VUxqz3RW.dpuf

 

 

 

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About HDA Consulting, LLC

HDA Consulting LLC provides a variety of accounting services including; forensic & litigation consulting, fraud & embezzlement investigation, payroll & tax. http://hdaconsultingllc.net. Try TSheets https://www.tsheets.com/#a:hdaconsulting
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