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78.34 when the auditor does not detect fraud, which occurs 71 percent of the time under
this combination. Similarly, under the trust/cooperate combination, the auditor’s expected
payoff of 22.32 is based on two outcomes. In the ﬁrst, the auditor is not penalized, which
occurs 81 percent of the time and the auditor receives 53.61. When the auditor is penalized,
he receives a payoff of 111.42 (i.e., he pays 111.42), which occurs 19 percent of the time
under this combination. The experimental parameters, such as the probabilities of fraud and
the probabilities of detecting fraud, do not necessarily represent real-world levels. Rather,
these parameters achieve separation in payoffs across the choice options, thereby enhancing
the experiment’s internal validity.
Characteristics of Manager Payoffs
The Manager’s Possible Payoffs Depend on His Selected Fraud Level, but Not on the
Consider the manager’s possible payoffs when he selects the cooperate fraud level
(column 1). Under this fraud level, the manager’s payoffs...
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- Fall '08