In the yes puffery settings managers may communicate

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Unformatted text preview: the best response to the expected strategy of the other player. In the yes-puffery settings, managers may communicate their intentions to commit low levels of fraud by using nonbinding communication mechanisms, or puffery. That is, a manager may ‘‘promise’’ his auditor-counterpart that he intends to cooperate by committing low levels of fraud, but not implement the promise. The puffery treatment captures the psychological links developed between auditors and their clients with repeated interactions that do not necessarily reflect the client’s true trustworthiness. Managers’ use of puffery may lead auditors to form biased judgments about managers’ trustworthiness. Economic theory predicts that auditors should ignore puffery because they can anticipate managers’ strategic opportunities. However, research on ‘‘cheap talk’’ (e.g., Cooper et al. 1989) suggests that puffery can create familiarity between players and thus facilitate the formation of reciprocal trust. I enhance managers’ appreciation of the strateg...
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This note was uploaded on 01/27/2014 for the course ACCY 405 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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