The limited information available to auditors should

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Unformatted text preview: esolution rounds. King—Investigation of Self-Serving Biases in an Auditing Trust Game 275 H1: Hypotheses for the NP/WG (Baseline) Setting This set of hypotheses addresses audit levels during the regular play phase of the NP/ WG setting. I set up two alternatives, one based on the Nash prediction and the second on the trust/reciprocity literature. Under the Nash equilibrium, auditors analyze the expected payoffs for both parties and recognize managers’ incentives to defect from a choice to cooperate. The limited information available to auditors should constrain them from forming a justifiable basis for trusting managers. Without a basis for trust, economic theory predicts that auditors will protect themselves by selecting the Nash audit. Theoretically, they should choose the Nash level 100 percent of the time, but previous research shows that such an extreme prediction is unsubstantiated. For example, Bloomfield (1995, 1997) finds that equilibria have low predictive power when each player’s optimal strategy is highly sensitive to the other’s choice, as in my setting....
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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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