Accounting for risk aversion in decision making

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The role of risk aversion in non-conscious decision making

The role of risk aversion in non-conscious decision making

It has been argued that the task design of the IGT confounds several factors known to play an important role in decision making ( Fellows, 2004 ; Sanfey and Cohen, 2004 ; Dunn et al., 2006 ), which undermined previous attempts to demonstrate non- conscious decision making. We sought to avoid these confounds by modifying the original IGT in several important ways. First, we incorporated post-decision wagering to indirectly measure sub- jects’ conscious awareness of the deck-payoff contingency in every trial ( Persaud et al., 2007 ). Second, we introduced a reshuffling procedure to observe multiple episodes of learning and choice within a single subject, resulting in greater statistical power. Such a feature is desirable not only for behavioral studies like ours, but also for neurophysiological experiments ( Fukui et al., 2005 ; Oya et al., 2005 ). In fact, despite its wide application in behav- ioral studies, the IGT, which can induce at most a single onset of awareness, has been used only in a few imaging studies in good part due to this statistical limitation. Third, we addressed the concern about heterogeneous priors on the task structure by explicitly telling the subjects the distributions of payoffs from the four decks and letting them practice the task. This also helped to eliminate the effects of ambiguity aversion, which have been shown to cause subjects to avoid gambles with unknown prob- abilities ( Ellsberg, 1963 ; Camerer and Weber, 1992 ; Rode et al., 1999 ; Hsu et al., 2005 ). This improvement was also critical for our Bayesian modeling analysis. If subjects did not know anything about the task structure we could still have used a reinforcement learning algorithm ( Oya et al., 2005 ), but it is unclear how to com- bine such a model with risk aversion ( Bossaerts et al., 2008 ). In fact, the model comparison (see Appendix) suggests that our Bayesian model with knowledge of the task structure performs better in predicting subjects’ behavior than the one without this knowledge and other related reinforcement learning models ( Busemeyer and Stout, 2002 ).
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Agricultural Risk Aversion Revisited: A Multicriteria Decision-Making Approach

Agricultural Risk Aversion Revisited: A Multicriteria Decision-Making Approach

Even though these limitations can be reduced, to certain extent, by adopting the experimental method, this has often proved difficult to implement in practice, since the financial cost involved in a real situation with many producers is too high. With respect to observed economic behaviour there are also some difficulties, such as the influence of other non-monetary objectives in the decision-making process (e.g. leisure, management complexity, etc.) and constraints (financial limitations, lack of technical information, etc.) that “contaminate” attitudes to risk. If this method is adopted, therefore, it would not be correct to explain any behaviour that differs from profit maximization purely in terms of risk aversion.
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Neural correlates of value, risk, and risk aversion contributing to decision making under risk

Neural correlates of value, risk, and risk aversion contributing to decision making under risk

1 Department of Physiology, Development, and Neuroscience, University of Cambridge, Cambridge CB2 3DY, United Kingdom, 2 Ecole Polytechnique Fe´de´rale de Lausanne (Odyssea), CH-1015 Lausanne, Switzerland, and 3 Wellcome Department of Imaging Neuroscience, Institute of Neurology, London WC1 3BG, United Kingdom Decision making under risk is central to human behavior. Economic decision theory suggests that value, risk, and risk aversion influence choice behavior. Although previous studies identified neural correlates of decision parameters, the contribution of these correlates to actual choices is unknown. In two different experiments, participants chose between risky and safe options. We identified discrete blood oxygen level-dependent (BOLD) correlates of value and risk in the ventral striatum and anterior cingulate, respectively. Notably, increas- ing inferior frontal gyrus activity to low risk and safe options correlated with higher risk aversion. Importantly, the combination of these BOLD responses effectively decoded the behavioral choice. Striatal value and cingulate risk responses increased the probability of a risky choice, whereas inferior frontal gyrus responses showed the inverse relationship. These findings suggest that the BOLD correlates of decision factors are appropriate for an ideal observer to detect behavioral choices. More generally, these biological data contribute to the validity of the theoretical decision parameters for actual decisions under risk.
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Homeland security: a case study in risk aversion for public decision-making

Homeland security: a case study in risk aversion for public decision-making

The decision analysis used herein is preliminary, and serves to illustrate some important aspects of risk aversion for public decision-making. We have used well known and accepted utility theory, and while the methods are not novel, the application to homeland security has not been attempted previously. In policy making there are often more than two policy options, and the two selected herein represent two extreme policy decisions to illustrate the key points. In reality, the allocation and effectiveness of homeland security expenditure would result in many policy options, and each would need careful and detailed decision analysis to gain insights into their costs and benefits.
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Relating Decision Making Styles, Depressive Symptoms, and Induced Mood to Risk Aversion

Relating Decision Making Styles, Depressive Symptoms, and Induced Mood to Risk Aversion

Relating Decision Making Styles, Depressive Symptoms, and Induced Mood to Risk Aversion When most individuals are about to make an important decision, they first spend some time thinking about the options involved. Yet different people might weigh certain thoughts more heavily than others. For example, when deciding between two job offers, one person, Ashley, may look up as much information as she can find, and compare the pros and cons of each job, in a highly analytical fashion. Another person, Ian, might simply have a certain gut- feeling about one job that he does not have about the other, and would therefore go with the job that he intuitively knew was best for him. Even still, a third person, Rita, might ask herself which she would be least likely to feel bad about choosing later on. She would come to her final decision based on the idea that the job she chooses is less likely to cause her to regret her
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Investment decision making under uncertainty: the impact

of risk aversion, operational flexibility, and competition

Investment decision making under uncertainty: the impact of risk aversion, operational flexibility, and competition

via canonical real options theory has mainly been under monopoly or perfect com- petition. Moreover, recent work that considers a duopolistic setting has assumed risk neutrality. In this chapter, we extend the traditional real options approach to strategic decision making under uncertainty by examining how duopolistic com- petition affects the entry of a risk-averse firm. We consider two identical firms that are risk averse and hold an option each to invest in a project that yields stochastic revenues. The firms face the same output market, and, as a result, investment decisions of one firm impact the revenues of both firms. We begin by analysing the monopolistic case and then extend this framework by adding one more firm assuming either a pre-emptive or a non-pre-emptive setting. In the pre-emptive duopoly, both firms have the incentive to invest in order to ob- tain the leader’s advantage, while in the non-pre-emptive duopoly, the role of the leader is assigned exogenously. For each setting, we analyse the impact of uncer- tainty and risk aversion on the optimal investment timing decisions of the two competing firms and examine the degree to which the presence of a competitor impacts the entry of a risk-averse firm. Hence, the contribution of this chapter is threefold. First, we develop a theoretical framework for analysing investment under uncertainty and risk aversion for a monopoly as well as pre-emptive and non-pre-emptive duopolies in order to derive closed-form expressions where pos- sible for the optimal investment thresholds. Second, we quantify the degree to which competition impacts the strategic investment decisions of a risk-averse ri- val. Finally, we provide managerial insights for investment decisions and relative firm values under each setting based on analytical and numerical results.
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Accounting Information and Decision Making

Accounting Information and Decision Making

same time, highlighted the value of accounting information to investors and credi- tors. We discuss the specific provisions of SOX in more detail in Chapter 4. Important as such legislation is in supporting the ethical foundation of account- ing, it is equally important that accountants themselves have their own personal standards for ethical conduct. You cannot, though, just go out and suddenly obtain ethics when you need them. (“I’d like a pound of ethics, please.”) Rather, accoun- tants need to develop their ability to identify ethical situations and know the differ- ence between right and wrong in the context of the accounting topics you will learn in this course. One of the keys to ethical decision making is having an appreciation for how your actions affect others.
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The Importance Of Accounting Innovation In Decision Making

The Importance Of Accounting Innovation In Decision Making

haiderlayth101@gmail.com Abstract: This investigation or the study goes for examining the association between managerial accounting innovation implementation and profitable basic leadership and besides to investigate the precedence and outcomes of Managerial Accounting Development execution. The key research question is the manner by which managerial accounting innovation implementation has an effect on firm survival. Resource-advantage theory and contingency theory are fundamental of the study. Questionnaire is utilized as an instrument for information accumulation from accounting administrators or accounting officials of each firm which is the key data of the investigation. The basic role of this examination is to analyze the impacts of MAII (cost portion fixation, target estimating center, execution assessment competency, client benefit investigation, movement based administration ability and administration control introduction) on valuable decision- making. Likewise, another research purposes to initially, examine the impact of managerial accounting innovation implementation on money related data convenience, managerial practice advantage and business operation quality antecedence and consequences of managerial accounting innovation implementation and to inspect the directing impacts, furthermore, analyze the impact of monetary data handiness, managerial practice advantage and business
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Metacognition and Decision Making in Management Accounting Students

Metacognition and Decision Making in Management Accounting Students

Assistant Professor, Department of Accounting, Faculty of Management and Economics, Science and Research Branch, Islamic Azad university, Tehran, Iran ABSTRACT Competitive and skilled management accountants are needed for the companies' survival in an ever-changing world and also a world without borders. Therefore, the problem is what components in a decision maker brings out the best decision. Since learning is continuous and continuous learning is essential in an ever changing world in order for the company to survive. The aim of this study is to determine the effect of metacognition on management accounting students' decision. To reach this aim 83 graduate students of Islamic Azad University of Tehran have been studied in 2017 using three questionnaires. Path analysis and factor analysis have been conducted simultaneously in PLS software. The results show that the correlation between metacognition and management accounting students' decision (what it is) is negative. And also the relationship between metacognition and management accounting students' decision in practice (what it should be) is negative. The study concludes that although metacognitions' aim is to bring out competitive learners, it does not necessarily make innovative decision-makers. Also centralized management in low-privatized countries could affect innovation in decision making
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A brief History of Decision-Making Research in Accounting

A brief History of Decision-Making Research in Accounting

This paper provides a short sketch of the most important milestones in judgment and decision-making (JDM) research in accounting. In order to understand key issues of JDM research in accounting it is important to know how “behavioral” aspects were introduced into the accounting community. Thus, this paper analyses the last five decades of behavioral accounting research and describes how psychological thought was implemented into accounting research. This paper particularly focuses on emerging themes in JDM research such as heuristic reasoning and how these concepts are picked up in behavioral accounting. Overall, this paper provides a starting point for scholars interested in the foundations of behavioral accounting and JDM research in accounting respectively.
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Managerial Decision-making and Management Accounting Information

Managerial Decision-making and Management Accounting Information

Degree Master of Business Administration Degree Programme Master´s Degree Programme in Business Informatics Instructor Antti Hovi, Senior Lecturer Considering the pace of business changes and significant amounts of information available to businesses using modern technology, one prime challenge has become to filter out the valuable information and present it in a manner that makes it useful for managers to take on business decisions. These changed requirements have led management accounting to adapt alongside. This Master’s Thesis is a case study of Tecnotree Group, a global provider of telecom IT solutions, the purpose of which was to explore how the current management accounting reports correspond to the management information needs and to identify how the management reporting could be improved or supplemented, so that the reports would benefit the management and better support informed and efficient decision-making within the organization. More explicitly, the study sought to provide answers to the reports usability, quality, perceived challenges to extract value to support decisions and development direc- tions.
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Using Extrajudicial Accounting Surveys in Decision Making

Using Extrajudicial Accounting Surveys in Decision Making

Abstract: An extrajudicial accounting survey can be required by the party or parties who set the objectives the chartered accountant should meet, representing an efficient highly specialized assistance tool for any business which wants to be protected from risks. The extrajudicial accounting survey has a much larger and more complex span than the judicial one, aiming at different issues: economic, patrimonial, managerial, financial, fiscal, information ones, surpassing most of the times the strict frame of financial and accounting information and services. The aim of the paper is to emphasize the deeply applicative character of the extrajuridical accounting survey in clarifying varying aspects that occur in a company‘s activity and that affect the decision making. The article focuses on the presentation of a sample extrajuridical accounting survey report with remarks, which, both in form and content, can become a source of inspiration both for theoretical debates and in the practical activity. In the international practice, the extrajudicial accounting surveys are used both for making important economic decisions, and for the fair information of all those who use accounting information, for certifying certain calculations or information, for rationalizing information flows etc. Keywords: objectives; documents and certificates; financial statements; CECCAR
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Managerial Decision-Making and Financial Accounting Information

Managerial Decision-Making and Financial Accounting Information

The literature addressing the topics of decision-making and the use of information covers a wide range of fields, each with its own perspective. Thus, it is not surprising that we are far from reaching agreement in this area. Our paper focuses on the role of financial accounting informations in managerial decision-making. The findings of our paper revealed that financial accounting informations help managers know what happened in the past and which is the present situation of the company, make visible those events that are not perceptible by daily activities, provide a quantitative overview of the company and help managers prepare for future activities and decisions. To be usefull for decision making, financial accounting information must be intangible, relevant, reliable and comparable. The reality of decision-making reveals that decisions are taken not only in terms of informations and status quo, but based on personal beliefs and representations that shape the personal vision of the world.
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The impact of accounting information on decision making process

The impact of accounting information on decision making process

whereas, others go for an odd combination of activities and even subterranean one to survive. Any business or individual that wants to survive must make the right decisions. The era of mile of thumb is gone, employing it is a sure way to fail absurdly. The price of any conceivable item from bread to book not to mention petrol has been soaring in geometric progression over the years. The economy is truly in dire straits. These compounds and complicates intricately are the problems of organizations vis-a vis-effective planning and decision making processes, other factors such as stagflation, taxation, economic and political in research study. It is the intention of the researcher to concentrate more on financial accounting, cost
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Relative Risk Aversion in Real Life: A Dynamic Analysis of Educational Decision Making. with Ability Updating and Heterogeneous RRA behavior

Relative Risk Aversion in Real Life: A Dynamic Analysis of Educational Decision Making. with Ability Updating and Heterogeneous RRA behavior

The Theory of Relative Risk Aversion (RRA) stipulates that students make educational decisions with the aim of minimizing the risk of downward social class mobility. In a previous paper we have formulated and tested a dynamic RRA model of educational decision making (Holm and Jæger 2008). In this paper, we extend this model in two important regards. First, we allow for actors to update information on their academic performance at several points during the educational career; i.e., we allow for people to learn “how smart they are” and to act on this new information. Second, we allow for heterogeneous RRA effects, i.e., for the possibility that not everyone adopts perfect RRA behavior and that some agents may act “irrationally” when making educational decisions. We test our new dynamic RRA model using data from the National Child Development Study. We find, first, a statistically significant RRA effect and, second, that agents to some extent update
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DEVELOPMENT OF DECISION MAKING BY MANAGERS WITH FINANCIAL AND ACCOUNTING INFORMATION

DEVELOPMENT OF DECISION MAKING BY MANAGERS WITH FINANCIAL AND ACCOUNTING INFORMATION

florinb@seap.usv.ro Abstract. The quality conditioning of an accountant's job corresponds thus with the competitive level in the company. The operationalization of the used specialty language, on the one hand and on the other hand the efficient management of the financial situation acquire a significant role regarding a strategic partnership at the micro and macroeconomic level in business as long as the managerial structures of understanding the economic reality are put in correlation with the accountant's socio-professional training in the firm/concern. Even if the professional accountant is paid by a determined client, which is the final beneficiary of the development service or audit financial statements, the information drawn from these financial statements are used by those who form the public. In this way, the accounting profession is distinguished from the other profession by accepting its responsibility to the public. There are numerous studies on an international level, dealing with various methods of improving the decision making process. The most competitive multinational companies have already considered the opportunities favored by financial adjustments, directed at streamlining the accounting functions and they have also trained professionals in the field of accounting that would successfully perform as business partners, thus assisting the decision making process within the organization. The financial adjustments have become essential for many companies that have thus gained a significant competitive advantage. The plan for improving the efficiency of the financial function is very clear, but the training of the business partners who would provide assistance in making decisions still remains a challenge. The economic perspective on the account reality highlights a pragmatic materialization, at the company’s level, of some specific skills designed to support the important role that the financial situations have. So, the individual significations of the accounting practice generate inside society different attitudes of the economic actors.
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Accounting: business reporting for decision making, 2nd ed.

Accounting: business reporting for decision making, 2nd ed.

1. Explain the process of accounting. Explain the differences between accounting and bookkeeping. Outline the role of accounting in decision making by various users. Explain the diffe[r]

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Using Accounting Information in Decision Making of Hospitals Managers

Using Accounting Information in Decision Making of Hospitals Managers

Decision making process requires information. Accounting is the most important source of information. In 1998, the international federation of accountants issued a statement about the scope and using of accounting. It identified 4 stages for using accounting information: cost determination, planning and financial control, reduction of resources waste and creation the value. This study was designed to provide insights into using accounting information in managerial decision making. Using the IFAC classification, this study investigated evolution stage of using accounting information in hospitals. The study population consisted of financial employees working at the hospitals located in Tehran (Iran). The study sample consisted of 54 private hospitals and 82 public hospitals.
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THE IMPLICATIONS OF MATERIALITY CONCEPT ON ACCOUNTING PRACTICES AND DECISION MAKING

THE IMPLICATIONS OF MATERIALITY CONCEPT ON ACCOUNTING PRACTICES AND DECISION MAKING

Keywords: materiality, accounting practices, accountants‟ judgments, International GAAP, US GAAP. Introduction The application of materiality is not a new issue. The materiality is applied for most decisions involving economical activities. Since 1800‟s, the United Kingdom courts had emphasized the importance of the disclosures to the users of financial statements. In the United States, the discussion about the importance and implications of materiality increased after The Security Act of 1933. The materiality concept is important for all decision making topics. Also the implication of materiality is essential to understand and apply the generally accepted accounting principles (GAAP) and to prepare and analyze the financial statements.
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Management Accounting: strategic decision making, performance and risk

Management Accounting: strategic decision making, performance and risk

8 Chapter 1 outcomes, due to a number of factors (including the choice of objectives) different outcomes will be considered more significant than others in any one organisation as a result of those organisational differences. Organisations will use the weighting, or the level of sensitivity/significance, of each of the differing outcomes when setting the target levels of outcome achievement in pursuit of its goals. In doing so, the organisation can make an assessment of acceptable business risk exposure in terms of the cumulative assessment, across all objectives, of past and future outcome achievement expectations. It can also assess the likelihood of achieving the desired increases in shareholder wealth and organisational value, or maintaining its capacity to deliver quality services on demand. While the identification of goals and objectives provides the reasons for the organisation existing, and therefore the outcome aspirations necessary to sustain its existence, consideration as to how the organisation might operate and be structured to achieve its desired outcomes must occur. Typically, this is achieved through identifying the organisational strategies necessary to achieve the organisational objectives. In doing so, the mix of resources necessary to support the processes and their operationalising activities can be identified along with the inputs and outputs necessary to achieve the organisational outcomes.
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