IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v2y1986i2p259-282.html
   My bibliography  Save this article

An analysis of the auditor's uncertainty about probabilities

Author

Listed:
  • S. LARSSON
  • G. R. CHESLEY

Abstract

. Uncertainty or ambiguity about what specific probability to associate with a given event is a problem for auditors and is one that has been shown to influence the decisions of others. While some theories of probability assume this problem away, others have tried to address it in various ways. This paper provides a formal analysis of this question and presents a means of characterizing the ambiguity associated with the probability inference. The measure we present can capture a number of the previously specified approaches to this question while exhibiting some very intuitive conclusions and some well†known mathematical properties. Résumé. L'incertitude ou l'ambiguïté relative à la probabilité spécifique à attribuer à un événement donné, est un problème pour les vérificateurs et un problème qui a été démontré comme influençant les décisions des autres. Alors que certaines théories de probabilité ne tiennent pas compte de ce problème, d'autres ont essayé de s'y intéresser de différentes façons. Cet article fournit une analyse formelle de cette question et présente un moyen de caractériser l'ambiguïté associée avec l'inférence de probabilité. La mesure que nous présentons reprend un certain nombre des approches déjà existantes sur cette question tout en exposant quelques conclusions très intuitives et quelques propriétés mathématiques bien connues.

Suggested Citation

  • S. Larsson & G. R. Chesley, 1986. "An analysis of the auditor's uncertainty about probabilities," Contemporary Accounting Research, John Wiley & Sons, vol. 2(2), pages 259-282, March.
  • Handle: RePEc:wly:coacre:v:2:y:1986:i:2:p:259-282
    DOI: 10.1111/j.1911-3846.1986.tb00618.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1911-3846.1986.tb00618.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1911-3846.1986.tb00618.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Einhorn, Hj & Hogarth, Rm, 1981. "Behavioral Decision-Theory - Processes Of Judgment And Choice," Journal of Accounting Research, Wiley Blackwell, vol. 19(1), pages 1-31.
    2. William Fellner, 1961. "Distortion of Subjective Probabilities as a Reaction to Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 670-689.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    5. Peleg, Bezalel, 1970. "Utility Functions for Partially Ordered Topological Spaces," Econometrica, Econometric Society, vol. 38(1), pages 93-96, January.
    6. Heimann, Sr & Chesley, Gr, 1977. "Audit Sample Sizes For Aggregated Statement Accounts," Journal of Accounting Research, Wiley Blackwell, vol. 15(2), pages 193-206.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wally Smieliauskas, 1989. "A note on Bayesian risk models of audit practice," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 720-732, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bruno S. Frey & Reiner Eichenberger, 1989. "Should Social Scientists Care about Choice Anomalies?," Rationality and Society, , vol. 1(1), pages 101-122, July.
    2. Budescu, David V. & Kuhn, Kristine M. & Kramer, Karen M. & Johnson, Timothy R., 2002. "Modeling certainty equivalents for imprecise gambles," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(2), pages 748-768, July.
    3. Marcello Basili & Carlo Zappia, 2010. "Ambiguity and uncertainty in Ellsberg and Shackle," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(3), pages 449-474.
    4. Wüstemann, Jens, 2004. "Evaluation and response to risk in international accounting and audit systems : framework and German experiences," Papers 04-20, Sonderforschungsbreich 504.
    5. Marc Willinger, 1990. "La rénovation des fondements de l'utilité et du risque," Revue Économique, Programme National Persée, vol. 41(1), pages 5-48.
    6. Levon Barseghyan & Francesca Molinari & Ted O'Donoghue & Joshua C. Teitelbaum, 2013. "The Nature of Risk Preferences: Evidence from Insurance Choices," American Economic Review, American Economic Association, vol. 103(6), pages 2499-2529, October.
    7. Wüstemann, Jens, 2004. "Evaluation and Response to Risk in International Accounting and Audit Systems: Framework and German Experiences," Sonderforschungsbereich 504 Publications 04-20, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    8. Marcello Basili & Carlo Zappia, 2007. "The weight of argument and non-additive measures: a note," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 003, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    9. Prpić, John, 2017. "Project Risk Management Incorporating Knight, Ellsberg & Kahneman," SocArXiv yqhjx, Center for Open Science.
    10. Bernard, Carole & Ghossoub, Mario, 2009. "Static Portfolio Choice under Cumulative Prospect Theory," MPRA Paper 15446, University Library of Munich, Germany.
    11. Hagen Lindstädt, 2004. "Entscheidungskalküle jenseits des subjektiven Erwartungsnutzens," Schmalenbach Journal of Business Research, Springer, vol. 56(6), pages 495-519, September.
    12. Carlo Zappia, 2008. "Non-Bayesian decision theory ante-litteram: the case of G. L. S. Shackle," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0408, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    13. Enrico Diecidue & Jeroen Van De Ven, 2008. "Aspiration Level, Probability Of Success And Failure, And Expected Utility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 683-700, May.
    14. Aurélien Baillon & Laure Cabantous & Peter Wakker, 2012. "Aggregating imprecise or conflicting beliefs: An experimental investigation using modern ambiguity theories," Journal of Risk and Uncertainty, Springer, vol. 44(2), pages 115-147, April.
    15. Carlo Zappia, 2015. "Daniel Ellsberg on the Ellsberg Paradox," Department of Economics University of Siena 716, Department of Economics, University of Siena.
    16. Han Bleichrodt & Jose Luis Pinto & Peter P. Wakker, 2001. "Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility," Management Science, INFORMS, vol. 47(11), pages 1498-1514, November.
    17. Basili, Marcello & Zappia, Carlo, 2009. "Keynes's "non-numerical" probabilities and non-additive measures," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 419-430, June.
    18. Mr. S. Nuri Erbas, 2002. "Primeron Reforms in a Second-Best Ambiguous Environment: A Case for Gradualism," IMF Working Papers 2002/050, International Monetary Fund.
    19. Christina Leuker & Thorsten Pachur & Ralph Hertwig & Timothy J. Pleskac, 2019. "Do people exploit risk–reward structures to simplify information processing in risky choice?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 5(1), pages 76-94, August.
    20. Itzhak Gilboa & Andrew Postlewaite & Larry Samuelson & David Schmeidler, 2019. "What are axiomatizations good for?," Theory and Decision, Springer, vol. 86(3), pages 339-359, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:coacre:v:2:y:1986:i:2:p:259-282. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3846 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.