The Psychological Attraction Approach to Accounting and Disclosure Policy
AbstractWe offer here the psychological attraction approach to accounting and disclosure rules, regulation, and policy as a program for positive accounting research. We suggest that psychological forces have shaped and continue to shape rules and policies in two different ways. (1) Good Rules for Bad Users: rules and policies that provide information in a form that is useful for users who are subject to bias and cognitive processing constraints. (2) Bad Rules: superfluous or even pernicious rules and policies that result from psychological bias on the part of the ‘designers’ (managers, users, auditors, regulators, politicians, or voters). We offer some initial ideas about psychological sources of the use of historical costs, conservatism, aggregation, and a focus on downside outcomes in risk disclosures. We also suggest that psychological forces cause informal shifts in reporting and disclosure regulation and policy, which can exacerbate boom/bust patterns in financial markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14046.
Date of creation: 11 Mar 2009
Date of revision:
Investor psychology; accounting regulation; disclosure policy; salience; omission bias; scapegoating; limited attention; overconfidence; conservatism; loss aversion; accrual; smoothing; mental accounting; historical cost; risk disclosure; value-at-risk;
Find related papers by JEL classification:
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
- M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting
- H10 - Public Economics - - Structure and Scope of Government - - - General
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G0 - Financial Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-03-22 (Accounting & Auditing)
- NEP-ALL-2009-03-22 (All new papers)
- NEP-CBE-2009-03-22 (Cognitive & Behavioural Economics)
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