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Beating the base-rate fallacy: an experimental approach on the effectiveness of different information presentation formats

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  • Christine Ohlert
  • Barbara Weißenberger

Abstract

Cognitive biases such as the base-rate fallacy are well known in theory, but until recently there exists only limited research how to cope with those biases in managerial decision-making. Hence, the aim of our study is to examine how management accountants should prepare information in order to reduce the phenomenon of base-rate neglect in probability judgments to guide rational managerial decision-making. To address this research question, we use an experimental design. Empirical evidence suggests that a visual-based information format, especially in comparison to a tabular representation, significantly reduces the fallacy of neglecting base-rates. In addition, we integrate user’s cognitive style and other personal characteristics as possible factors influencing the base-rate fallacy. Underlying mechanism and individual differences are discussed. Based on our findings, we offer advice to management accountants and guidance for future research directions. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Christine Ohlert & Barbara Weißenberger, 2015. "Beating the base-rate fallacy: an experimental approach on the effectiveness of different information presentation formats," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(1), pages 51-80, April.
    • Handle: RePEc:spr:jmgtco:v:26:y:2015:i:1:p:51-80
    DOI: 10.1007/s00187-015-0205-2
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    References listed on IDEAS

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    Cited by:

    1. Ewgenij Besuglov & Nils Crasselt, 2021. "The effect of readability and language choice in management accounting reports on risk-taking: an experimental study," Journal of Business Economics, Springer, vol. 91(1), pages 5-33, February.
    2. Lisa Perkhofer & Conny Walchshofer & Peter Hofer, 2020. "Does design matter when visualizing Big Data? An empirical study to investigate the effect of visualization type and interaction use," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(1), pages 55-95, April.
    3. David Bourdin & Rudolf Vetschera, 2018. "Factors influencing the ratio bias," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 6(3), pages 321-342, November.

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    More about this item

    Keywords

    Base-rate fallacy; Debiasing; Behavioral accounting; Management reporting; Information presentation ; Visualization; Individual differences; Cognitive style; M10; M40;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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