32 is based on two outcomes in the rst the auditor is

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Unformatted text preview: of 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 Audit Level 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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