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The impact of cognitive biases on fraudulent behaviour: the Leeson case

Author

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  • Asokan Anandarajan
  • Gary Kleinman

Abstract

The forensic accounting literature (e.g., Albrecht et al., 2010) places a great deal of importance on the so-called fraud triangle of motive-means-opportunity. Wolfe and Hermanson (2004) presents a cognitive analysis of factors that may impact the motivation element in the fraud triangle, arguing that situational and other factors may lead individuals to engage in illegal acts without conscious intent to violate the law. We argue that cognitive analyses are important also in understanding individual evaluations of the means and opportunities that confront them. We draw on relevant psychological literature to show how cognitive heuristics can be used to explain why certain managers, in the presence of incentives, rationalise and commit fraud in accounting. We use the 'fraud diamond' (Wolfe and Hermanson, 2004) as the basis of our theoretical development. We use the Leeson/Barings bank's case as an example to demonstrate the application of cognitive biases in the perpetration of fraud.

Suggested Citation

  • Asokan Anandarajan & Gary Kleinman, 2011. "The impact of cognitive biases on fraudulent behaviour: the Leeson case," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(1), pages 40-55.
    • Handle: RePEc:ids:ijbeaf:v:2:y:2011:i:1:p:40-55
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    Cited by:

    1. Kleinman, Gary & Anandarajan, Asokan, 2011. "Inattentional blindness and its relevance to teaching forensic accounting and auditing," Journal of Accounting Education, Elsevier, vol. 29(1), pages 37-49.
    2. Li, Peng & Li, Qinghai & Du, Shanxing, 2024. "Does digital literacy help residents avoid becoming victims of frauds? Empirical evidence based on a survey of residents in six provinces of east China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 364-377.

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