a framework of research in bar

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A Proposed Framework for BehavioralAccounting Research

Jacob G. BirnbergUniversity of Pittsburgh

ABSTRACT: Behavioral accounting research BAR is richer today, in the topics cov-ered, the methods used, and the range of sub-areas of accounting in which it is per-formed, than ever before. This paper offers a framework within which BAR literature canbe viewed as a whole rather than in segments, such as by accounting sub-areas or by

research method. The framework classies BAR by the focus of the research: theindividual, group, organization, or the society within which accounting exists. The pur-pose of the framework is to help researchers in BAR to appreciate the insights to theirresearch questions that can be found in BAR using another research method or study-ing a similar issue in another sub-area of accounting. Existing research in each of thesefour areas is discussed to illustrate the usefulness of the framework. In addition, be-havioral research in other disciplines that could impact BAR and areas of potentialfuture research are discussed.

Keywords: behavioral accounting research .

INTRODUCTION

In the 20 or so years since Birnberg and Shields 1989 reviewed behavioral accounting re-search BAR , the area of applied behavioral research in general and BAR in particular hasburgeoned. The BAR literature has grown in breadth, depth, and complexity. This change

reects an important trend in BAR: the reference disciplines and the object of accounting andnonaccounting behavioral researchers have broadened.

The behavioral decision-making and cognitive psychology literatures that stimulated a sig-nicant portion of the emerging BAR research up to the late 1980s continue to have a signicantinuence on BAR e.g., Camerer 2001 . In addition, the role of behavioral research has grown inother social science disciplines. Experimental economics has moved into the mainstream e.g.,McCaffery and Slemrod 2006 . This literature has had an impact on BAR Moser 1998 ; Callahanet al. 2006 . Legal researchers, heavily inuenced by the writings of Kahneman and Tversky e.g.,Kahneman and Tversky 1979 , have begun to actively pursue behavioral issues see Sunstein2000 . A strong behavioral school even has developed within nance e.g., Thaler 1993 ; Barberisand Thaler 2003 . Medical researchers have joined with behavioral researchers to investigate

The author thanks the two reviewers for their insightful comments, the editor for the paper, Bryan Church, not only for allhis help, but also for his patience, and numerous colleagues for their help along the way.

A dagger at the end of select references indicates a review of the literature or a paper that includes an extensive set of references.

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting AssociationVol. 23, No. 1 DOI: 10.2308/bria.2011.23.1.12011 pp. 143

Published Online: February 2011

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issues such as how individuals react to prospective changes in the state of their health Udel et al.2005 . Even philosophy has developed a set of experimental researchers Knobe 2003 ; Appiah2007 and a journal. Emerging methods for researching old questions are altering the form of behavioral research, such as neuroeconomics Knudsen et al. 2007 . These new tools permitresearchers to go beyond the observed behaviors of the decision makers and penetrate the black box: that is, observe the brains activity during decision making. Finally, these new behavioralresearchers include economic modelers who have developed richer models of economic decisionmakers economic man intended to explain behaviors such as cooperation e.g., Rabin 1993 ,1998 , and empiricists who have utilized aggregated data to test these models e.g., La Porta et al.1997; Ittner 2007 .

The burgeoning of BAR and the expansion of disciplines that in one form or another haveadded behavioral as an adjective to one of their sub-disciplines has enriched the extant researchon which BAR can draw e.g., Dickhaut et al. 2003 ; Hannan 2005 . However, the increasedinterest and diversity of methods used to research behavioral issues also leads to a blurring of thedenition of behavioral research in general and the boundaries of BAR in particular. What wasrelatively clear 20 years ago is less clear today. The proliferation of research methods has meantthat BAR is more than laboratory experiments, surveys, and the occasional eld study. A varietyof archival databases have been used to investigate essentially behavioral issues Banker et al.2000b; Ittner 2007 . Even efcient markets researchers, who would not be considered part of theBAR community, are identifying and researching issues that clearly are intended to understandindividual investorsbehaviors: most notably, anomalous behavior relative to the predictions of theefcient market Sloan 1996 .

This blurring of boundaries between research thrusts has led to an often unrecognized degreeof commonality across BAR thrusts. While this has obvious potential benets that will be dis-cussed latter, it means the boundaries used in this paper necessarily are arbitrary and subjective. Ingeneral, the questions studied and the papers cited will be related to the actual behavior of people,whether it is as individuals or collectivities of varying degrees of size or complexity e.g., groupsor organizations , as they interact with each other and/or their environment. The test used in this

paper is analogous to one offered as an operational denition of obscenity: We know BAR whenwe see it. At the margin different people will draw the line in different places. However, there islittle disagreement in the core of the research.

Given the growth in BAR, any attempt to provide a detailed review of BAR in general wouldlead to a paper far beyond one this author could be expected to competently produce. Moreover,recently a signicant number of specialized reviews have been published offering the potentiallyinterested reader a wide variety of in-depth studies of BAR by both research topic e.g., auditing,management accounting and research method e.g., laboratory experiments, eld research . Thesereviews are cited in this paper where appropriate and review papers, or those with particularlyuseful reviews of the literature, are identied in the reference section of this paper.

What would appear to be needed at this point in time is a framework within which the readercan integrate the diverse studies making up BAR. To do this, I will present a framework that

focuses on the reference group of the studies, highlighting examples of research conducted in eachfocal domain using different research methods and from different accounting sub-elds withinBAR. This approach not only is more parsimonious, but also permits the highlighting of a criticalfacet of any research: complementarities of BAR across accounting sub-elds and methods. Forexample, a paper dealing with audit teams may inform researchers interested in teams in manage-ment accounting, and a eld study may provide a laboratory researcher with the insight needed todesign a better experiment.

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Behavioral Research In Accounting Volume 23, Number 1, 2011American Accounting Association
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The paper consists of six sections. The rst provides an overview of the paper and theframework used. The second through fth sections discuss each of the broad categories of studiesin the framework. The nal section offers a brief summary of the paper.

ORGANIZATION AND SCOPE OF THE REVIEWThe approach used in this paper to categorize BAR is the behavioral unit that is the object of

the research. Does the research study the behavior of an individual, group, etc.? Organizing studiesin this manner highlights the similarities across otherwise diverse studies and is intended tofacilitate intellectual exchange among accounting researchers. To do this, I must necessarily re-strict the depth of the review in any section to accommodate the desired breadth of coverage. Theframework is described in the next section. Like BAR, the boundaries between these categories attimes are subjective. For example, a paper may cover issues appropriate for understanding bothgroups and organizations Anderson et al. 2002 .

FrameworkI have elected to view the extant BAR by what I have labeled its focus. I dene focus as the

unit used to analyze the research question s . The units range from the study of individuals to the

study of the environment that acts upon accounting or that accounting helps to shape. The fourcategories used in this review were selected because they dene distinct sets of researchquestions. 1 The categories include:

individuals, small groups, organizations, and environmental conditions.Because a studys classication is determined by the set of individuals it considers in the

research question s and/or the analysis, the categories can be viewed as constituting a series of concentric circles, with the innermost circles representing the more micro studies. The outerrings represent more macro studies reecting the broader focus of the research question s . Theenvironmental conditions category can be interpreted as the world within which all other events

occur. Two important points should be noted. First, within the categories, particularly the indi-vidual category, there may be sub-categories. Second, studies from one category may informstudies in another, likely adjacent category.

Denition and Discussion of the CategoriesIndividuals . These studies focus on the characteristics of a single actor and/or that actors

response to a particular accounting data set, accounting-related stimulus, or accounting-relatedsetting. It is by far the most active of the BAR categories discussed in this paper and can beviewed as consisting of its own sub-categories. One line of individual research can be character-ized by a concern with how individuals solve problems. I label these pure choice studies becausethey focus on how well any actor can solve a problem without consideration being given to thebehavior of other actor s . Recently, many of these studies have investigated the manner in whichthe economic model economic man in some signicant way does not t the behavior we

observe.The second line of research explicitly considers the role of strategic behavior in the actors

1 This organization is similar to Hopwoods 1976, 5 Figure 1.1 describing the social context of accounting. He had fourcategories: individual needs, group pressures and control, organizational structures and control strategies, and the socialeconomic environment. The organization used here differs from Hopwoods by recognizing differences within the grouppressures and control categories between individuals and groups. This reects changes in BAR over the decades.

A Proposed Framework for Behavioral Accounting Research 3

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decision. In these studies the actor explicitly should consider the behavior of a second actor whoactually is present in the setting. These studies would include negotiation e.g., Fisher et al. 2000or cheap talk e.g., Zhang 2008 . I label these strategic studies.

Groups . Research classied as covering groups includes those studies where the relevant unitof analysis consists of a small number of individuals. Typically, the members will be viewed bythe organization as afliated i.e., as acting in concert in some signicant way . Thus, whatdifferentiates group research from research studying participants individually or strategically in-teracting in dyads is the afliation of the members. The actors are assumed to be in the same unit at the time of the study. This would exclude studies such as those where the individuals are locatedin different levels in a hierarchy. It is distinguished from research on organizations on two dimen-sions. One is pragmatic. Groups are small enough to permit the researcher to study the interactionamong the multiple participants. As the size of the group increases, researchers nd it moredifcult to create and/or analyze the interactions process and the focus of the research shifts fromthe members of the group/organization to the organization itself. The other distinction is the focusof the research. While group research is concerned with the activities of the groups members,organization research is concerned with the role of policy or the effect of characteristics of theorganization or its environment on the organizations accounting policy or the organization as awhole. This reects a higher level of aggregation where the behavior of the individuals is lost. Forpractical purposes the upper limit of group research usually is relatively small, typically four.

Organizations . As noted above, the focus of this research is on the characteristics of the unit.The entity studied may be described by the legal boundaries of a rm or a division within a largerentity. The research question often is the role played by structural characteristics such as task complexity or the organizations accounting system design. These studies move us farther awayfrom the characteristics of the individual discussed in the two previous categories. It identies theindividuals/groups that compose the organization by the roles they occupy rather than by focusingon the characteristics/actions of the individuals who occupy them.

Environmental conditions . These studies examine the role of accounting in society. Studiesincluded in this category reect the interaction between accounting and society: that is, the broaderworld of which accounting is a part. The interaction can take the form of the external forces that

shape accounting, as well as studies of the role accounting has played in shaping the world inwhich we live. The former may be closely related to BAR studies in organizations. For example,Prime Minister Margaret Thatchers intention to privatize British Rail affected the relative roles of accounting and engineering within the organization Dent 1991 , or the potential impact of thewhistleblower provisions of Sarbanes-Oxley Hunton and Rose 2010 ; DeZoort et al. 2008 . Howthe institution of standards for outputs led to the establishing of standard sizes for clothing Jeacle2003a is an example of how developments in accounting standard costs can lead to changes inthe environment standard sizes .

INDIVIDUALSThe earliest BAR studies across all accounting areas were of this type and it continues to be

the dominant form of BAR. Shields 2007 reported that 90 percent of the papers published in BRIA from 2004 to 2007 studied the behavior of the individual. As noted earlier, studies of the

individual are of two types: individual choice studies and strategic studies. While the two share acommon core of issues such as the selection of participants and the research methods utilized, theyare signicantly different in many other ways. Thus, this section of the paper is organized in aslightly different manner than those discussing the other elements of the framework. The rstsub-section discusses issues common to both. The second sub-section discusses elements specicto individual choice studies, and the third sub-section does the same for strategic choice studies.

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Common IssuesThe two types of individual choice studies share many common features. These include the

research method selected and the choice of participants. Each of these is discussed below. Thesection also discusses differences between the traditional economic model of self-interested be-havior and recent ndings in the areas of interpersonal utility, trust, and cooperation found in thisresearch.

Research MethodsThe individual choice studies consist predominately of experiments, though some utilize

surveys Shields 2007 . Experiments are particularly appropriate when the relevant dimensions of the decision environment in which the decision maker interacts with the stimulus and makes thedecision are well known. Experiments have been used in BAR to examine a wide variety of questions, including internal policies, external policies, tax reporting policies, incentive systems,various types of resource allocation decisions, ethical issues, and various types of reports. Theresponses measured have varied from objective outcomes such as investment decisions Libby andTan 1999 to more subjective perceptions such as fairness Evans et al. 2005 or trust Coletti etal. 2005 . Overall, studies of this type are the predominant form of research in BAR, particularlyNorth American BAR, and can be found across a wide variety of topics, accounting sub-areas, andsettings.

Individual choice studies also utilize surveys e.g., Chalos and Poon 2000 ; Clinton andHunton 2001 and archival data e.g., Banker et al. 2000a . Archival studies often reect a natu-rally occurring experiment that permits the researcher to study behavior before and after thechange stimulus has taken place.

ParticipantsA signicant shift has taken place in the nature of the participants used in experimental

studies. Participants in the early studies most often were students undergraduate business majorsand/or M.B.A. students . BAR studies of the individual over the past two decades, however, have

required and utilized professionals as participants to a far greater degree. This is a signicantdifference from the disciplines from which BAR draws its theories e.g., psychology , where thegeneric participant remains the norm. This reects the differences in the two groups referencepopulations for external validity. The use of professionals as participants became necessary whenBAR shifted from its initial focus of how participants respond while playing a particular role towhether the skills accumulated by professionals insulate them from the negative effects of heu-ristics and biases when performing complex tasks e.g., Libby and Trotman 1993 ; Kennedy1993 . Students cannot simulate that accumulated experience or professional knowledge, nor cana mundane experimental task provide insight into the professionals work.

The use of professional participants in BAR implicitly assumes that the professionals behav-ior in an experimental setting accurately reects their behavior on the job. Fehr and Leibbrandt2008 address this issue. They examine the cooperating behavior of shermen both in a labora-

tory trust experiment and their level of cooperation to avoid over-shing a given area. They ndthat the participants behavior in the experimental setting accurately predicted their work behavior.The broadening of the issues covered by BAR has expanded the type of professional partici-

pants required. The revival of interest in nancial BAR now requires participants possessingaccounting expertise. BAR investigating proposed changes in the accounting rules requiressophisticated/expert participants to test the validity of the hypotheses and enhance the studysexternal validity e.g., Hirst and Hopkins 1998 . This also is true of BAR investigating anomalies


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found in archival nancial accounting research to generate BAR hypotheses e.g., Joe 2003 ,2 aswell as studies of the behavior of information providers in nancial markets, such as securityanalysts e.g., Libby and Tan 1999 . However, many nancial accounting-oriented BAR studiescontinue to utilize M.B.A. students as surrogates for the nave investor e.g., Tan and Tan 2009 .For a review of these studies and a discussion of the issues, see Libby et al. 2002 and Koonceand Mercer 2005 .

An exception to the use of professionals as participants is found in experiments in manage-ment accounting. What we have learned from use of auditors and investors as participants wouldsuggest that manager participants likely would exhibit many of the same cognitive biases asstudent participants e.g., Kennedy 1993 ; Gilad and Kliger 2008 . However, this comparabilitymay not carry over to activities such as budgeting behavior and negotiation. See Vance et al.2008 for an auditing example.

Some researchers utilizing student participants attempt to compensate for the participantslack of expertise by measuring participants task-specic knowledge e.g., so many courses inaccounting or years of work experience . They also use measures of the participants generalproblem-solving ability, such as SAT or GMAT scores or responses to selected questions fromtests of that type e.g., Dearman and Shields 2005 . For a nonaccounting study, see Burks et al.2008 . These measures typically are used to identify potentially relevant differences among in-

experienced participants i.e., students . However, Dearman and Shields 2005 use their problem-solving ability measure as an independent variable to explain why some participants exhibitnonxated behavior while others did.

One topic related to the selection of participants in which BAR has shown less interest thanothers of decision making-oriented research is gender differences. Non-BAR strongly suggeststhat this may be an issue. These studies have reported signicant gender-related differences inareas such as risk taking e.g., Jacobsen et al. 2007 ; Huang and Kisgen 2008 , competition e.g.,Gupta et al. 2005 , and negotiation behavior e.g., Bowles et al. 2007 . All these areas can beimportant in BAR.

Those BAR studies reporting the presence or absence of gender-related differences in ob-served behavior have utilized these data in one of two ways. One uses the participants gender asan independent variable e.g., Johnson et al. 1998 . These studies investigate the conditions underwhich the participants gender could affect behavior. If gender differences exist, randomizationmay obscure their effect s . Other studies check for gender differences to be sure that they do notconfound the experiments results e.g., Booker et al. 2007 ; Fleischman et al. 2007 . Future BARmay show greater awareness of the issue since SSRN in June 2009 established an ARN forDemographics, Gender, and Diversity Accounting Abstracts.

Because of the limited research, it is an open question whether gender is as relevant an issuewhen professional participants are used as it is in other studies. Do their professional training andexperiences override any gender issues? Two studies suggest that the differences may persist. Chinand Chi 2008 , using archival data from Taiwanese audits, found that female auditors are morerisk-averse and more ethical in evaluating clients accruals. A survey of U.S., German, Italian, andThai fund managers Beckmann and Menkhoff 2008 found what they describe as the expectedgender differences: female respondents are more risk-averse and exhibit greater aversion tocompetition.

Noneconomic Dimensions Affecting the Individual In what could be labeled post-modern BAR, a line of research focuses on the appropriate-

ness of two assumptions in the traditional economic model. One is that self-interest is the sole

2 In an interesting twist, Allee et al. 2007 used archival nancial accounting data to provide convergent validity for BARhypotheses.

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motivator of choice; the other is the use of monetary outcomes as the sole basis for measuring theutility of an outcome. While it is possible to integrate these arguments into the utility functione.g., Birnberg and Snodgrass 1988 ; Luft 1997 ; Casadesus-Masanell 2004 , BAR tends to view

these dimensions as if they are constraints on the individuals wealth-maximizing behavior.Typically, BAR studies of this type bring together literature from psychology and experimen-

tal economics. They stress that rather than behave in a self-interested manner, individuals conformto certain social norms such as fairness, equity, trust, honesty, or a willingness to cooperate. For adiscussion of these issues, see Camerer 2001 , Rabin 1993, 1998 , Fehr and Gaechter 2000 ,Fehr and Schmidt 1999 , Moser 1998 , Evans et al. 2001 , Evans et al. 2005 , and Dawes andThaler 1988 . Another dimension related to fairness and equity but not explicitly discussed inBAR is egalitarianism Dawes et al. 2007 . Overall, these studies are important for BAR for tworeasons. First, they show how little it takes for the participants to exhibit non-self-interestedbehavior. Second, they show the importance of the individuals perception of equal/fair treatmentrelative to his or her peers and how they respond to a lack of perceived equity/fairness. Trust is of interest to behavioral researchers of all types Rousseau et al. 1998 ; Sapienza et al. 2007 . In BAR,Rose 2007 examined how managements nancial reporting behavior affected the investorswillingness to trust them. Evans et al. 2001 focus on the individual in a management accountingenvironment and show that individuals will behave honestly in a setting where their dishonest behavior would not be detected , thereby violating the self-interest assumption. As a possibleexplanation of this type of behavior, Rutledge and Karim 1999 found that those participants whodid not exploit their asymmetric information in a principal-agent setting scored higher on ethicaldevelopment than those who did. Their research and many other papers suggest that non-totallyself-interested behavior is the norm or default behavior for many individuals and in manysettings, rather than the self-interested behavior postulated in traditional economic theory. A pos-sible explanation for this behavior is their perception of whether they were treated fairly e.g.,Greenberg 1990 ; Hannan 2005 .

These ndings can lead to interesting research on the individuals response to their absence of fairness. Remindful of Lucy van Pelt and Charlie Browns ongoing relationship over his kickingthe football, Bohnet and Zeckhauser 2004 report that decision makers exhibit an aversion to

betrayal and take actions to avoid it. Wang 2007 examines the symmetry between the punish-ment for dishonesty and the reward for honesty. She nds that honesty is rewarded more gener-ously than dishonesty is punished. Issues of this type can be related to resource allocation inmanagerial accounting and client behavior in auditing. In both cases, the research question wouldinvolve identifying which behaviors lead to trust or distrust between the parties. What causes anauditor to trust one client more than another? What causes a superior manager or auditor to trusta particular subordinate?

Any trust-oriented research raises at least two questions related to experimental design. Oneis the importance of the experiments context degree of realism and the choice of participantsstudents or professionals used in the study. The other is the importance of the presence or

absence of the interaction with a real person when the participant is told of the existence of another participant. The latter issue is discussed under strategic choice situations.

Culture and Its Impact on Decision MakersBAR studies dealing with social norms and potentially differing values across cultures ask

whether differences in culture result in different decisions/behaviors. For the most part, thesestudies have utilized the framework of Hofstede 1980 . However, it is important to be aware thatsome issues have been raised about the appropriateness of his categories e.g., Baskerville 2003 ;McSweeney 2002 . Because of the readily apparent cultural differences, the greatest portion of this research has compared Asian and North American workers e.g., Birnberg and Snodgrass


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1988; Chow et al. 1999 . Thus far, the studies are inconclusive. While some of the studies havefound differences consistent with their predictions e.g., Kachelmeier and Shehata 1997 , othershave not Birnberg et al. 2008 . In an interesting archival nancial accounting study related toBAR, Doupnik 2008 nds inter-country differences in earnings management after allowing fordifferences for legal regimes.

The potential role of national cultures is becoming more important as BAR internationalizesand research ndings reported by researchers from many different countries appear in journals andSSRN. This raises the following question. Are research ndings from one country universallyapplicable or should we be concerned and replicate them before we accept their universality?

As management systems and styles internationalize in large, industrialized economies, itmay mitigate concerns over cross-cultural differences. However, this homogeneity may not bepresent in small-scale economies. In contrast to results reported in some BAR, Henrich and theCross Cultural Ultimatum Game Research Group conducted an extensive study across 15 small-scale economies. Their study is important because they examine behavior among economieswhere the variation in economic development is far greater than those typically studied by BAR.Using the dictator game and a social dilemma game, as well as the ultimatum game, they report

that the textbook economic model failed to predict the observed behavior. Their results arereported in various forms Henrich et al. 2005 , 2001 , as well as in Henrichs 2007 plenaryaddress at the AAAs 2007 annual meeting. They conclude behavior in the experiments is gener-ally consistent with economic patterns of everyday life in these societies. Henrich et al. 2001,7374 report that, The higher the degree of market integration in their society and the higherthe payoffs to cooperation in their society , the greater the level of cooperation in experimentalgames.

SummaryWhile the methods used to study individual behavior have not changed signicantly since

Birnberg and Shields 1989 , BAR has paralleled the trend found in experimental economics. Asignicant portion of BAR now focuses on factors that inuence decision makers in directions atodds with the self-interest and wealth-maximizing assumptions. These noneconomic dimensionsinclude trusting behavior, cooperation, and the expectation of a fair share of any rewards. Incertain settings this can lead to greater monetary returns to the decision maker. However, they alsocan expose the decision maker to greater risk. Other characteristics of the work environment,such as the national/local culture, also can affect the expectations and behavior of the decisionmaker. It has been suggested that certain of the cultural differences observed in individuals may bebased on different market conditions among countries.

Individual Choice StudiesThere are a variety of reasons for the popularity of individual-focused research in BAR. The

rst is simplicity. Considering the individual investor, auditor, etc., in isolation lends simplicity toboth the studys research model and its design. It also simplies the analysis and interpretation of the results. The second is parsimony. It takes the fewest number of participants to achieve the

desired number of observations per cell. This is especially important when the participants areprofessionals. The third reects the models generated in the disciplines on which BAR has drawnmost heavily economics and psychology . Both contain a signicant literature relating to how theindividual makes a decision. Sociology and organization theory consider the group to be thesmallest unit and have been drawn on by BAR to a signicantly lesser extent.

Individual choice studies in BAR can be divided into two types, depending on the type of variable investigated. One group of studies is interested in better understanding the impact of

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elements of the setting within which the individual acts on the individual. The other is concernedwith the appropriateness of rational wealth-maximizing characterization of the decision maker.

Factors Related to the Task Setting

Four elements of the task setting are of particular interest in individual BAR. These areincentives, participation, accountability, and systems interface. The rst two are the focus of asignicant portion of BAR; the latter two, much less.

Incentives . Chow 1983 initiated experimental research on the role of incentives in BAR.This line of BAR literature typically uses the principal-agent model to generate hypotheses. For asurvey of the economic models of incentives, see Prendergast 1999 . In general, the studies reportthat incentives matter and the nature of the incentive system impacts an agents behavior e.g.,Bonner et al. 2000 ; Towry 2003 ; Sprinkle et al. 2008 .

Participation . Participation is, essentially, concerned with the honesty of communicationwithin the organizational hierarchy. Early BAR investigated how accurately the workers/agentswould communicate their private information. Would they use it to create slack? Generally, theanswer was yes e.g., Young 1985 ; Shields and Shields 1988 .3 However, as discussed subse-quently, later research recognized the strategic nature of the interaction between the subordinateand the superior and modeled participation as a negotiation process.

Accountability . Given the function of accounting, it is surprising that the formal develop-ment of accountability was in psychology see Lerner et al. 1998 for a review despite the obviouslink to management accounting research; that is, the effect of evaluation on individual behaviore.g., Argyris 1952 ; Prakash and Rappaport 1977 . The notion of evaluation in BAR is not limited

to management accounting. When the superior in an audit team examines the work of a subordi-nate or a client examines the work of a tax professional, an evaluation is taking place. Thedifference between the evaluation literature and BAR on accountability is reected in the breadthof the questions they ask. The evaluation literature focuses on how the accounting system e.g., theperformance indicator affects the extent and direction of the effort provided by the workersPrakash and Rappaport 1977 . Accountability BAR not only asks for what the worker feels

accountable, but also asks to whom the worker feels accountable when facing conicting de-

mands e.g., Johnson and Kaplan 1991 ; Messier and Quilliam 1992 , or how elements present inthe accountability setting e.g., a need to justify ones actions affect the workers behavior Ah-rens 1996 .

Miller et al. 2006 recognized that there is an element of mutual accountability in the evalu-ation process. The superior likely has a prior relationship with the subordinate and in manyinstances must justify any evaluation he/she makes. Their study focuses on the reviewer in anaudit setting. While the study only examines one party to the dyad, their ndings suggest thatfactors such as familiarity between the two parties can affect the reviewers assessment. Theremay be limitations on the ability to perform these experiments with professional participants indyads because of the potential impact on the participants post-experimental relations.

Systems interface . Information systems in BAR essentially are viewed as decision aids. Theyare discussed under various labels, such as decision support systems DSS and knowledge basedsystems KBS . The DSS typically is used in the management information systems literature todescribe an information system intended to support a specic decision and is closest to the termdecision aid DA , which typically is used in auditing to describe what may or may not be acomputerized calculating system. In contrast, the KBS refers to a database collected for a specic

3 Those familiar with the dictator game discussed below will recognize that Youngs 1985 task is essentially the use of a dictator game to simulate participation.


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area of inquiry e.g., XBRL .The simpler of the two is the DSS. Two broad questions are researched under DSS. How well

are the systems utilized by those for whom they are intended? And, what characteristics of theDSS facilitate or inhibit their utilization? Specic issues researched under the former include notonly whether the DSS improves decisions, but whether the potential users utilize them andwhether the system can be used to facilitate learning. They differ from the individual choice BARstudies discussed earlier i.e., that examined how the individual responds to specic outputs of thesystem . Those studies typically are linked to cognitive issues and the use of accounting data e.g.,Lipe and Salterio 2000 ; Dearman and Shields 2005 . The papers discussed in this section areconcerned with the utilization of a DSS as a DA designed to assist an individual perform a specictask. In general, they report that the DSS is not always utilized e.g., Whitecotton 1996 ; Eining etal. 1997 .

Whitecotton 1996 found that auditors reliance on the DA was inversely related to theircondence in their own judgment. Obviously, this raises two questions. Is the auditors condenceappropriate? And, how do those using the DA perform relative to the best auditors? Rose andWolfe 2000 shed some light on the second question. Using student participants and a tax calcu-lation task, they report participants who performed the calculation using pencil and paper ratherthan the DA outperformed the best DA-assisted group by 22 percent, but required 112 percentmore effort Rose and Wolfe 2000 , 297; also see Glover et al. 1997 ; Borthick et al. 2006 . It isimportant to learn whether the results can be replicated with professionals because it is likely thattheir judgment is superior to that of the students.

Arnold et al. 2006 studied the type of data from the KBS used by relative novices senior/ staff auditors and relative experts partner/manager . The two groups differed on several dimen-sions. Novices chose feedforward explanations, while the experts chose feedback. Arnold et al.2006 report that the greater the experts reliance on feedback explanations from the KBS, the

greater their adherence to the KBS recommendation.There also are interactive systems intended to facilitate access to larger databases. These DSS

are intended to improve the quality of decision making or assist in training. The issues consideredrevolve around the usefulness of the database. In BAR, the issue typically can be framed in terms

of the behavioral characteristics of the user and the usefulness to the user of the DSS. The XBRLis an example of such a system. It is intended to enhance the users ability to obtain and under-stand nancial data about the rm. Hodge et al. 2004 found that nonprofessional users of nancial statements were better able to ascertain the impact of differing reporting methods forstock options between rms using the XBRL than without it. However, like Rose and Wolfe2000 , they reported that many of their participants did not utilize XBRL. Other BAR has as its

purpose examining the use of DSS as a tool for training/educating novices.Alternative modes of communicating information, such as graphs, frequently are used in

reports. For example, nonnumerical formats are regularly used in corporations annual reports,internal reports, and our research. This issue initially was asked by MIS researchers in the 1970sDickson et al. 1977 and subsequently extended e.g., Vessey 1994 . Despite the extensive use of

pie charts and graphs in internal and external reports, there is little research in BAR on this topicfor an exception, see Amer 2005 . In marketing, MacKay and Villarreal 2007 found that the

recipients ability to take advantage of the simpler nature of nonnumerical data is likely to varyamong individuals. An interesting example of earlier research in this area, using faces to commu-nicate nancial data, was reported by Moriarity 1979 .

Noneconomic Dimensions Affecting the Individual The above dimensions of the task are essentially elements of the task setting in which the

individual makes a decision. They typically are set by the organization or environment within

10 Birnberg

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which the decision maker is operating. The decision maker also brings certain characteristics suchas trust and fairness to the setting. These characteristics may be relatively stable for any decisionmaker e.g., desire to be treated fairly , or they may vary with the situation e.g., the decisionmakers mood . In this section, these characteristics as they relate to individual choice are dis-cussed.

Ethics . Closely related to the study of norms is the study of ethical behavior. The formeroften is researched in the context of what others expect the actor to do, while ethical behaviortypically refers to the actors behavior. Noreen 1988 offers a theoretical link between ethics andagency theory. He argues that parties to the contract could be expected to follow social norms.Early BAR on ethics focused on the participants moral development e.g., Ponemon 1990 . Thesestudies are concerned with two issues. How developed is the moral reasoning of particularindividuals/groups? And, how does a given level of ethical development affect participants on-the-job behavior? These two questions can easily be adapted for BAR in any of the accountingsub-areas. The broader issue is how signicant the ethical issue is in that sub-area. Auditingresearchers have led the way in considering the role of ethics in BAR. For reviews, see Louwerset al. 1997 and Jones et al. 2003 .

Like the cross-culture research described earlier, the ethics-based research has been charac-terized by issues over how to measure the level of ethical development/behavior of the partici-pants. This is not surprising since, like culture, the level of an individuals ethical development isnot observable as distinct from actions . For a discussion of the different approaches, see Cohenet al. 1996 .

In a post-Enron world, BAR in both auditing and management may nd the issue of increasedimportance. The problem facing the researcher is likely to be one of access. To minimize thedegree of intrusiveness and obtain responses, this research typically relies on surveys or cases toelicit responses. There also appears to be a reluctance to publish these papers in the mainstreamaccounting journals. A signicant number of BAR studies have been published in The Journal of Business Ethics e.g., Arnold et al. 2007 ; Emerson et al. 2007 .

Two tax-oriented ethics studies suggest possible studies for management accounting behav-ioral researchers. Fleischman et al. 2007 demonstrate the linkage across the various aspects of

individual-focused research. The paper examines the evaluation by managers in a case concerningthe ethical behavior of a spouse in the context of a tax setting innocent spouse rule . The paperexplores the potential existence of the innocent spouse rule as a norm and the extent to whichresearch in ethics by behavioral scientists can explain it. Similar studies might be conducted inmanagement accounting. They could relate the participants response to the ring of an innocentmanager and, for example, the participants predicted subsequent job behavior. This behaviorrelates to the issue of perceived fairness discussed earlier. In the area of nancial accounting, Rose2007 related how what could be labeled un ethical reporting by management leads to dis trust

on the part of investors.Cruz et al. 2000 report that tax professionals willingness to resist the clients desire for

aggressive tax reporting is positively correlated with professionals score on the MultidimensionalEthics Scale. This raises the question of how a subordinate might respond to a superiors effortsfor a more favorable set of budget estimates. Would a measure of ethical development predict the

likelihood of cooperation? In an experiment in nancial reporting, Vance et al. 2008 hypoth-esized and found that the better the superior-subordinate relationship, the less likely the subordi-nate was to resist the superiors request for aggressive nancial reporting.

Two sets of BAR studies have extended early BAR on ethics in interesting ways. Theyexamine the impact of the individuals environment on the individuals ethical behavior. Boothand Schulz 2004 examine the impact of the organizations ethical climate on the individualsbehavior. In a laboratory study, they nd that holding the participants level of ethical development


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constant, the behavior of the participant moves in the direction of the organizations ethicalclimate. There is no reason to believe that similar results would not be found in the effect of thepermissiveness of audit rms on auditor behavior.

Spicer et al. 2004 and Bailey and Spicer 2007 linked cross-cultural research and ethics.Earlier studies had reported ethical differences among auditors in different countries e.g., Patel etal. 2003; Arnold et al. 2007 . Spicer et al. 2004 and Bailey and Spicer 2007 researched theethical norms of a culture on individuals raised in a different culture. In their studies, they studiedU.S. expatriates in Russia involved in the Russian business community. They report convergencein ethical attitudes and intended behaviors between U.S. expatriate and Russian respondents totheir ethics survey. The U.S. expatriates in their study responded more like their Russian counter-parts than U.S. nationals in the U.S. The respondents also expressed similar attitudes towardorganizational practices that violated the ethical standards or hyper-norms. The U.S. expatriaterespondents who were highly integrated into the Russian community expressed ethical attitudessimilar to those of Russian respondents under conditions of local Russian norms. In both cases,the ethical attitudes of Russians and Americans converge despite the differences that might havebeen expected to arise due to their respective national identities.

Mood . Recently, psychologists, experimental economists, and accountants have begun toexamine the role of the decision makers emotional state affect on the decision process. Thesestudies could be important if different mood states affect the decision makers perceptions anddecisions. While mood could affect strategic interactions, the research undertaken in BAR thus farhas focused on the individual decision maker.

The rationale underlying studies of this type is that mood affects the nature of the priorexperiences retrieved from memory. Positive mood states lead to retrieving positive outcomes incomparable situations and vice versa . Wright and Bower 1992 , in a BAR-related study, reportedthe effect of decision makers emotional state happy, neutral, or sad on their perception of thedegree of riskiness of a decision and probability of success. As they conjectured, the subjectiveprobability estimate is inuenced by the decision makers mood. Happy decision makers givehigher probabilities for the outcome of positive events and lower probabilities for the outcome of negative events. They report the opposite results for sad decision makers.

In an accounting context, Moreno et al. 2002 and Kida et al. 2001 report similar results.Consistent with these results, Chung et al. 2007 studied auditors making inventory valuationdecisions and nd that mood state affects the degree of conservatism in the auditors inventoryvaluation. Auditors in a positive mood are less conservative than those in a negative mood.Moreno and Bhattacharjee 2008 , in a single-party study the other party did not actually exist ,report that knowledge of the other partys emotional state affects bargaining behavior. For adiscussion of the literature arguing that emotion can enhance the individuals ability to makerational choices, see Ackert et al. 2003 .

Psychologists and experimental economists have studied other emotional states that could beof interest to accountants. Lerner and Keltner 2000, 2001 report that fearful participants makemore pessimistic estimates and more risk-averse choices, while anger leads participants to makemore optimistic risk estimates and risk-seeking choices. Interestingly, the responses of angryparticipants more closely resembled those of happy participants than those of fearful participants.

For reviews, see Lerner et al. 2004 and Pham 2007 .An interesting issue raised by these studies is whether the effect of these emotions is to make

people overly optimistic/pessimistic. We cannot conclude one way or the other without havingsome baseline measure of the probability. What should the individuals believe the probability tobe? Since the participants disagree, we can assume that their emotional state has led at least oneof the groups to be incorrect, but that does not preclude the possibility that they both may be inerror. Ideally, further research will be undertaken in this area where there is a known correct

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answer. A topic that conceivably could be related to the issue of optimism/pessimism is the effectof regret in decision making. It has been shown to have an impact in many nonbusiness decisionsettings e.g., Gilbert et al. 2004 .

A paper by Libby et al. 2008 suggests that optimism/pessimism is not always the irrationalresult of the decision makers emotional state. They report that in some circumstances optimism/ pessimism may be the result of the incentives. If analysts desire good relations with management,they report that, all else being held constant, the optimism/pessimism of sell-side analysts is adeliberate act and not based on an emotion or trait.

Two recent studies suggest the possibility of yet another emotion that could be affectingworker behaviorguilt/guilt aversion. These studies also illustrate how labels potentially canserve to separate like ideas. Schnedler and Vadovic 2007 hypothesize and nd that guilt aversionmotivated participants to exert effort beyond the minimum required by the control system. Onemight conjecture that this merely renames the concept embodied in gift exchange e.g., Hannan2005 . Stafero 2006 used guilt to describe the behavior of individual members of Japanesework groups. The workers felt guilt when they made insufcient contributions to their work group.In contrast, Birnberg and Snodgrass 1988 offer a more positive explanation of this behavior,

suggesting that the outcomes to other members of the group may have a positive utility to anindividual member. Failure to achieve the groups goal results in lowered utility because of theloss to others as well as to oneself.

Fairness . While the perception of fairness has primarily been researched in strategic settings,the perceived fairness of the accounting system affects the behavior of the individual in individualchoice settings as well. Libby 2001 and Hufnagel and Birnberg 1994 found that the participantswere sensitive to the perceived unfairness of the accounting system procedural fairness evenwhen they were not adversely affected by the rule or system.

Physiological Measures and BARBehavioral accounting researchers have tried a variety of methods to understand decision

processes. The methods utilized are relatively non-intrusive, but provide greater insight thanobserving an outcome/response in an experimental setting. These approaches include think-aloud

protocols e.g., Bedard and Biggs 1991 and data boards e.g., Shields 1980 . These approachesyielded insights into cognitive ow or the decision process being followed. However, both of these methods directly involve the participant and are limited to reporting the decision makersconscious behavior. The methods discussed in this section measure the same behaviors discussedearlier, but use methods intended to measure physiological changes.

Hunton and McEwen 1997 utilized an eye movement retinal imaging computer to study theinformation search strategy of nancial analysts. Unlike protocol analysis that relies on self-reporting and data boards that report only choices, they were able to track the search strategies of the analysts in a less obtrusive but more detailed manner. They were able to observe data scannedbut not reported protocols or chosen data boards by the participants. Consistent with data boardresearch, they found that the more accurate analysts used a directed rather than a sequenti al searchstrategy. Their search appeared to be motivated by hypotheses generated by the process. 4

In nance, Lo and Repin 2002 used more traditional methods electro-dermal and pulse ratemeasures to measure the emotional state level of excitement of ten stock traders while they wereactually trading. Lo and Repin 2002 found signicant differences between periods when signi-cant market events were and were not taking place. They argue this suggests that emotion is a

4 For a discussion of the use of eye movements in marketing research where they have been used more often, see Zaltman1997 .


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relevant component of the traders decisions. Their data suggest that the response varies withexperience, but the sample is too small to draw any statistically signicant conclusions.

Neuroeconomics and Neuroaccounting

Recently researchers studying decision making have taken a new approach. Working withneuroscientists, they have gone one step deeper inside the black box that is the decision maker.Using various devices, they observe the patterns of brain activation as individuals make choicese.g., McCabe et al. 2001 ; Camerer et al. 2005 ; Knudsen et al. 2007 . Given the neuroscientists

knowledge of the function of the brain centers, conclusions can be drawn about what underlies theobserved behavior. By moving one step closer to the decision makers cognitive activity, the roleof the stimulus and the response changes in an interesting way. The decision, typically consideredthe response in BAR studies, now is the stimulus and the brain center activation is the response.This is in contrast to traditional research in BAR where researchers observed behavior and inferredthe underlying cognitive processes or extracted them from protocols.

Thus far, little research of this type has been undertaken by behavioral accounting researchersexcept for John Dickhaut e.g., Dickhaut et al. 2003 ; Smith and Dickhaut 2005 ; Rustichini et al.2005; Dickhaut 2009 . Dickhaut and his colleagues have papers Dickhaut 2009 ; Dickhaut et al.2009a , 2009b using neuroscience to study the evolution of recordkeeping i.e., accounting .However, none of these papers provide the type of systematic review of the possible link betweenneuroscience and BAR that can be found for nance in Sapra and Zak 2008 , who offer neuro-science explanations for observed behaviors in nancial decision making where data from neuro-science and neuroeconomics are available.

While potentially quite insightful, there are at least three reasons why research of this typewill progress more slowly than other types of BAR. First, it requires cooperation with a researcherpossessing access to machines to perform the scans and skilled in reading brain scans. Second, itwould appear that research of this type is quite expensive. Third, explaining the ndings to otherBAR researchers may be difcult. Moreover, the results may not eliminate the issue of hard-wired versus learned behavior as the explanation for the response.

An example of neuroeconomic researchs potential relevance to BAR can be illustrated using

the ndings of Luft 1994 and Hannan et al. 2005 . Luft 1994 found that participants in herstudy preferred a bonus to a penalty pay scheme even though the payoffs from the two systemswere equivalent. Hannan et al. 2005 found that the participants in the penalty condition exertedmore effort. Given that neuroscientists have shown that different brain centers are used to measurepleasure reward and pain penalty Delgado et al. 2000 , this raises the question of whether thepreference for a bonus scheme reects differences between the pleasure and pain brain centershardwired neuroscience explanation or whether it is the approval implied by the reward and

disapproval associated with a penalty a social psychology issue of intrinsic reward . Barnea etal. 2009 , using Swedish data on twins to study investing behavior, suggest that there is both agenetic and a learned component.

A series of neuroscience studies may provide some insight into what is happening. Using theultimatum game, Tabibnia et al. 2008 report MRIs of the brain that suggest similar results tothose above for fair and unfair behavior. Their design utilized an individual choice study using

only participants who receive the offer ultimatum . First, the results suggest that the recipientparticipants differ in what they believe to be a fair offer. Second, those who judge the offer to beunfair show different patterns of brain activity than those who consider the offer to be fair.Finally, participants who accept an unfair offer had different patterns in their MRIs than those whoreject unfair offers Tabibnia et al. 2008 .

A study by Harbaugh et al. 2007 that relates brain activity to altruism in decision makersalso illustrates the potential link of neuroscience to BAR. They studied the brain scans of 19

14 Birnberg

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female students who were asked to make a decision allocating $100 between a food bank andthemselves. The brain scans of the altruistic gave more and selsh gave less participantsshow that the altruistic participants exhibit greater activity in the part of the brain that reectspleasure than do the selsh participants. The altruistic participants show signicant activity in thatpart of the brain even when they were required to contribute a xed portion of the $100 to thecharity. Studies of this type suggest that there is a physiological basis for the altruistic behaviorthat is observed in the real world. It does not explain if the behavior is inherent and hardwiredHsu et al. 2008 or related to interacting with people and learned Andreoni 1990 . The authors

suggest that they believe their results also would apply to male participants had they been includedin the study.

Zak and his colleagues introduced a line of neuroeconomic research that approaches theblack box of human cognitive processes in a different way. They argued that the observedbehavior, in this case trust, is based on the brains response to a particular hormone. Trustingparticipants exhibit higher levels of the relevant hormone than nontrusting i.e., economicallyrational participants. This work is summarized in Zak 2008 . Kuhnen and Chiao 2009 showthat there also appears to be a genetic basis for the differences in the amount of dopamine andserotonin. In their study these differences, like those reported by Zak 2008 , are associated withdifferent patterns of behavior.

Summary: Individual Choice StudiesOverall, research focused on the individuals decision-making behavior has played an impor-

tant role in BAR historically. The predominance of individual-focused research, particularlyamong North American and many Australian researchers, is easily observed by examining a recentissue of BRIA 2007 . It contained 13 papers. All of these papers could be classied as focused onthe individual even though they may describe in the scenario the existence of another/otherhypothetical person s or have a scripted confederate role-play the other person. Equally impor-tant is the diversity in topics/areas in which the research is located. Three were related to auditing.Four dealt with aspects of management accounting. Three were related to nancial reporting/ decision making. There was one in tax ethics, one in cross-cultural ethics, and one related to

education. While this admittedly is a convenience sample, the results are similar to Shields 2007 .They likely are representative of current BAR in North America. A very different view of BAR inEurope would result from examining an issue s of AOS or other European-based accounting journals.

This emphasis on individual-focused research is likely to continue to be true of BAR in NorthAmerica for several reasons. Many BAR questions focus on the behavior of individuals actingalone. For example, some of the studies involve one individuals processing data provided byanother individual or a system e.g., Fedor and Ramsey 2007 . Others continue to be concernedwith the cognitive processes of individuals e.g., Joe 2003 . Still others involve norms, ethics, andculture, which typically have been studied by examining the behavior of the individual in isola-tion. Finally, the individual also may be the easiest approach for researchers.

Individual choice studies do not exist in isolation from the other categories of BAR discussedin this paper. As the research on strategic choice and group-focused behavior shows, understand-

ing the behavior of individuals often is the basis for hypotheses about behavior in dyads andgroups. Behavior such as honesty Evans et al. 2001 ; Cohen et al. 2007 , that has been exhibitedin studies in which the individual does not actually interact with another participant, can lead topredictions of behavior in dyads and groups that differ from those of classical economics. This isparticularly true because many of the individually focused studies are studies isolating one mem-ber of a network of individuals. This is readily apparent in the next section in the discussion of participation.




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There also are limitations in studying the individual in isolation. In part, this results from themovement in organizations to make groups and teams the decision-making unit. In addition, acertain amount of the richness found in the decision-making situation may be lost when BARisolates the individual from his or her environment.

Strategic Choice StudiesStudies that explicitly consider the participants strategic behavior are relatively new in BAR,

though strategic behavior often was implicit and important in earlier BAR. How managers behavein a participative management setting is an example of a strategic setting. Moving from anindividual choice study where the actors behavior is inward facing to one where another actorsbehavior explicitly must be considered introduces the strategic dimension to BAR. In contrast tothe individual choice studies, in the strategic behavior studies the decision maker must considerthe choices made or to be made by an actual rather than a hypothetical fellow participant. Forexample, in a management accounting study, the strategy to which the participant respondscould be the choice of budget level set by another participant acting as management. While anindividual choice study informs us how the manager/agent responds to a given budget level, we donot learn which budget level the owner/principal would choose to offer to motivate the manager/ agent. In an individual choice study, the researcher may set the independent variable e.g., thebudget at levels different from those a manager actually would choose.

A signicant amount of experimental economics research uses experimental dyads see Roth1995 . In BAR, strategic choice studies recognize the limitations in studying the individual inisolation from the environment and the importance in many settings of the behavior of the otherparty on the individual. Some argue that it is important actually to have the other party existwhenever the instructions indicate he/she does. Experimental economists argue that it is requiredfor one of two reasons. The rst is maintaining the integrity of the participant pool. Experimen-tal economists often utilize the same pool of participants in different studies. In some studies, theparticipants experience in a prior study even is a criterion for selection. They argue it is importantthe participants believe what they are told. If the post experimental debrieng informs them thatsomething was not really the case, they may speculate in future studies about the true nature of the

study. The other reason relates to the richness of the experimental setting. Unless the experimenterhas insight into how the other party will behave from prior eld or laboratory research, includingthe actual behavior of a participant will increase both the potential i nsights from and the validityof the study. See Calegari et al. 1998 for an example of this issue. 5

Negotiation StudiesThe negotiation process is ubiquitous in the business setting. For a review, see Tsay and

Bazerman 2009 . Audit rms negotiate with clients over changes in nancial statements andaccounting methods McCracken et al. 2010 , rms negotiate with suppliers when they establishoperationally intimate relationships JIT , and sub-units within the organization negotiate transferprices and/or quantities. While the surface characteristics of the situations are different, many of the behaviors may be the same e.g., the strategies adopted by the parties . They may differ oninformation asymmetry, division of payoffs, and relative power. The degree of information asym-metry would be expected to affect negotiation, as could the incentives of the parties. For example,in budgeting negotiations the parties typically are playing a zero-sum game. The slack absorbed bythe worker reduces the managers/principals prot by a like amount. In other cases, such as the

5 For a discussion of this literature from an auditing perspective but germane to all BAR, see Hooks and Schultz 1996and the symposium in Auditing e.g., Dopuch 1992 and Gibbins 1992 . For the contrary view from psychology, seeKelman 1967 .

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audit or transfer price settings, the negotiation game being played need not be a zero-sum game.Rather, a small concession by one party may be signicant to the other. Such an asymmetry inpayoffs should affect the negotiation process. Negotiation studies also can be characterized basedon the relative power of the participants: those where the parties have equal power and thosewhere one party has an advantage.

The signicance of the strategic interaction is of particular importance for BAR because of the importance of performance as a response. An example of how individual choice literatureand strategic choice settings are related can be found in Fisher et al.s 2000 study of participationutilizing interacting dyads. In the framework utilized in this paper, this represents a paradigm shift.Early BAR into participative budgeting focused on how the worker would behave. Would theworkers take advantage of their private information to create slack? Young 1985 even had hisparticipants meet with a supervisor played by the experimenter or a colleague. However, thesupervisor did nothing more than accept the worker-participants budget. Thus, Youngs 1985study essentially is an individual choice study. While social pressure was present the designforced the worker-participant to face a supervisor , it omitted any negotiation over the acceptabil-ity of the workers proposed budget. The explicit power in the situation was vested with theworker. In reality, the budget-setting process is quite different. In the natural setting, the supervisoralso has signicant power. Thus, while Young 1985 reported how the worker would act inisolation, important aspects of participation are better captured as a dyad that permits strategicinteraction.

A second area of negotiation studies where the use of dyads is present is in the transfer priceliterature. Like the participation studies, they are outcome-oriented. In an early study, DeJong etal. 1989 test the efcacy of various transfer pricing rules. Haka et al. 2000 vary the precisionof the accounting data the manager possesses. The participants receiving the less precise informa-tion negotiated strategically. They tried to achieve the best price at the risk of failing to reach anagreement. In contrast, the participants with more precise data used the negotiation process tocommunicate information to the other party about his or her position in an attempt to reach a moreinformed decision. Chalos and Haka 1990 and Ghosh 2000 also studied the negotiation processin the transfer price setting in laboratory experiments. Ghosh 2000 observed that when the

incentive system is consistent with the sourcing of the input, the systems are perceived as fairerand the participants behaved in a less exploitive manner. Also see Luft and Libby 1997 .How humans negotiate and what motivates them to behave in a particular way is a question

of interest to all BAR. Findings in one area have implications for the others. Calegari et al. 1998report two interesting results concerning dyads using an auditing-based task. One relates to theoutcome of the negotiation process, the other to method. In their study, M.B.A. students, partici-pating in the experiments as auditors and clients, exhibited two types of behavior: competitivepairs and cooperative pairs. The competitive pairs behave as Calegari et al.s 1998 economic-based hypotheses predict. However, the cooperative pairs exhibit what Calegari et al. 1998describe as signaling and cooperative behavior. What causes the pairs to behave differently is anunanswered question that should interest BAR.

Calegari et al. 1998 also reported an interesting methodological result. The outcomes froma human-computer dyad were different from those of the human-human pairs. Obviously, the

computer was not programmed to respond to cues/signals, such as willingness to cooperate, thatthe human partner might send. This reinforces the concern about the limits in utilizing the indi-vidual choice style of research when the other party has an opportunity to act/interact strategi-cally. This is especially true where the set of actions includes choices that could facilitate reachinga noncompetitive, but mutually benecial, conclusion.

There are, however, settings when studying dyads in a laboratory may not be practical or evenfeasible. This would be especially true in cases such as Calegari et al. 1998 , where students may


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not be suitable surrogates for professionals. This raises the issue of external validity. Researchershave tried to resolve this problem in an audit setting by studying the negotiation process usingprofessionals as participants in individual choice studies that simulate interacting dyads. Forexample, Favere-Marchesi 2006 studied the initial negotiation postures of auditors and clientsover a proposed change in the nancials, giving the same case study separately to each type of participant. They conclude that ex ante the clients have a better understanding of the auditorsinitial position than the auditors do of the clients. In a related study, Tan and Trotman 2007proposed and tested a model of when in the negotiation process auditors should make concessionsto clients. Their experiment uses nancial ofcers as clients and a computer simulation as theauditor who negotiates with the client via email . They report the clients responses and theclients strategies in responding to the simulated auditor. However, their ndings should be viewedin light of Calegari et al. 1998 . How this initial difference and differing strategies would play outduring negotiations between nancial ofcers and actual auditors remains an open question.Because of the potential problems involved in using actual auditors and their clients, it is unlikelyto be studied in an experimental setting using professionals as participants in both roles. We mayneed to rely on archival research to understand the behavior of these dyads e.g., Nelson et al.2002 .

Settings with explicitly unequal power . Other papers have utilized dyads in negotiation/ bargaining studies where the parties possess unequal power. These studies usually investigate thepresence or absence of the norm of fairness in economic man rather than negotiation in a specicsetting. They typically utilize either the ultimatum or the dictator game Roth 1995 . In the dictatorgame, one person the dictator is given an endowment to allocate between self and another partythe recipient . The recipient must accept the dictators allocation. These studies utilize actual

rather than simulated recipients. Because the recipient is passive in the experimental setting, th euse of a dyad would appear to be intended to meet the criterion of not misleading the participants. 6

In contrast, in the ultimatum game, the rst partys the proposer situation is identical to that of the dictator except that the recipient now may accept or reject the proposers offer. If accepted, theproposers offer determines each partys payoff. However, if rejected, both parties receive nothing.

The results of studies using both games tend to support a norm of fair treatment expected by

the responders and recognized by the dictator/proposer Roth et al. 1991 ; Berg et al. 1995 . In boththe dictator and ultimatum games, the rst party makes an offer approaching, on average, 40percent of the endowment Roth 1995 . This result appears to reect the recognition by many of the participants of a norm that sets the fair allocation of the endowment.

Cheap talk research in dyads . The typical cheap talk study also reects a setting wherethe strategic interaction is germane to the study e.g., Kachelmeier et al. 1994 ; Rankin et al. 2003 .How will the party receiving the nonbinding message react to it? Obviously, such a study could bedone using the individual receiving the message as the focus. However, such a study would losethe behavior of the participant who is allowed to make the cheap talk commitment. That individu-als behavior also is of interest to the researcher. Thus, it is preferable for the study to use a dyadpotential sender and receiver rather than only a receiver. In general, research has found that the

cheap talk often is viewed by the recipient as if it is a binding commitment e.g., Kachelmeier etal. 1994; Zhang 2008 . Cheap talk studies can be conducted in any setting in accounting where the

context permits one party to communicate with and make a nonbinding pre-commitment to an-other party that, if true, should affect the other partys behavior.

6 There are, of course, designs where the recipient-participant could be needed later for another experiment. For example,the recipient-participant in the early rounds could, in the later rounds or in another experiment, play the role of thedictator. The researcher could study the interaction between the amount offered to a participant and the amount subse-quently offered by that participant when acting as the dictator.

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Effect of non-negotiating third party . The work of Fehr and Gaechter 2000 and Zhang2008 provide insight into why it is benecial for the researcher to include all the potential parties

in a study. Fehr and Gaechter 2000 report that a third party, who only observes unfair behavior,is willing to incur a cost to punish the unfair participant. Zhang 2008 , in a BAR study, providesan interesting twist on the strategic interaction present in dyads. The dyad about which shehypothesizes consists of two managers agents who report to the same owner principal . Sheexamined the truthfulness and whistle-blowing behavior of two agents. Each agents cost is com-mon knowledge to the two agents, but asymmetrical information to the principal. Essentially, herndings show that the strategic behavior of the members of the dyad the agents depends on theendogenous behavior fairness of the third party the principal . The actual presence of the thirdparty in the study had two benets. First, it enhances the internal validity of the study. Second, itensures that the principals behavior in the experiment actually reects how the principal wouldact. In this case, the principal offers a lower wage because of concerns over being cheated by theagents. This insight, in turn, can serve as a basis for future BAR on the p

a framework of research in bar

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