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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.
- Fall '08