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I investigate self serving biases in an experimental

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Unformatted text preview: interactions with client personnel. I investigate self-serving biases in an experimental setting that has auditing frictions, while also incorporating the precepts of experimental economics. I investigate an ‘‘audit trust’’ game played by a pair of subjects: a manager and an auditor. Each manager chooses a level of misappropriation, hereafter denoted as fraud. The auditor’s goal is to predict the manager’s fraud level, because correctly anticipating the fraud level leads to an effective audit. I develop a 2 2 full factorial, between-subject experimental design. The first treatment manipulates the manager’s communications to the auditor (referred to as the puffery treatment). The puffery treatment has two levels—the no-puffery setting and the yes-puffery setting. In the no-puffery setting, managers cannot communicate to their auditor-partners their nonbinding intention to commit low levels of fraud. Without such communication, auditors have a limited basis on which to trust managers, and economic theory predicts that auditors will protect themselves by selecting the Nash strategy,...
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