Budgeting decisions as a function of framing: an application of prospect theory's reflection effect

• Published in: Management accounting research Vol. 2; no. 3; pp. 161 - 170
• Main Authors: Harwood, Gordon B., Pate, James L., Schneider, Arnold
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.09.1991
• Subjects: Budgeting
• ISSN: 1044-5005; 1096-1224
• DOI: 10.1016/S1044-5005(91)70032-2

Many decisions based on accounting data can readily be framed in relation to varying reference points. This fact suggests possible framing bias through prospect theory's reflection effect, past tests of which have been inconsistent in various contexts. The main purpose of this study was to test for the reflection effect in a budgeting decision as well as for the possible influence of decision-makers’ specific training, present work experience, level of past work experience, and the computation of decision alternatives’ expected value on decision outcomes. The sample consisted of 260 responses from graduate business students. In both positive and negative domains, there was a shift to greater risk-taking when framing was shifted from positive to negative. Subjects’ specific training, present work experience, level of past work experience, and the computation of expected value of alternatives all failed to produce significant effect on decisions.