BEHAVIORAL RESEARCH IN ACCOUNTING ‘American Accounting Association Vol. 21,No. 2 DOE 10.2308. 2009212.113 miss “What a Long, Interesting Trip it’s Been” through the Behavioral Accounting Literatur A Personal Perspective Michael D. Shields ‘Michigan State University INTRODUCTION am honored and grateful to receive this award. This award has been given to several people ‘who have made notable lifetime contributions to the behavioral accounting literature: Bob Ashton, Jake Bimberg, Mark Dirsmith, Anthony Hopwood, Bob Libby, Ken Merchant, Ted Mok, and Bill Waller, [am very happy to have my name added to this list, | would like to offer a personal perspective on the historical development of the behavioral accounting literature. I have been fascinated with the behavioral accounting literature for several decades. When I think about my experiences with this literature, I am reminded of the Grateful Dead's 1970 song ‘“Truckin’;” and I will rephrase their famous Iyric in that song, “What a lone, strange trip it's been.” to reflect my feeling that “What a long, interesting trp its been” through the behavioral accounting literature. My trip through the behavioral accounting literature has hacl four directions, I have observed that during my trip, the behavioral accounting literature also has had different directions, My tip began in 1970 when I was an undergraduate at Washington State University. I met Howard Rockness, who was then a doctoral student at the University of Washington studying ‘management accounting an psychology. [first became aware of the behavioral accounting literae ture as a result of talking with Howart. I told him that [liked economics, math, and psychology, but that I dd not know in which direction I wanted to go with my education. He suggested that I study accounting because it combines these three suibjects—that accounting is Logical and quain- titative like math, that it i used by people 10 make economic decisions and to motivate people, and that it affects social interaction. I was intrigued, so I took an accounting course. Soon thereafter, in 1974, I took John Fertakis? master’S-evel course on management control systems at Washingion State University. I thought taking this course from John was a really cool ‘nroduction © behavioral research on accounting. John had published DeCoster an Fenakis (1968) in the Joumal of Accounting Research on how managers’ budget pressure affects their leadership style, and a solo-authored article in The Accounting Review (Fertakis. 1970) using cognitive psychology theories to analyze the optimal level of information load in accounting ‘These remaris re a sighly eundd and revised version oF the notes I wed in making my remarks in spose to snceiing te Noche (Lifetime) Conuibuson Averd in Behavior] Accoundie Litre fem the Acceuning, Onze zations and Socety Section of the American Accounting Assocation ate ABO Reseach Confrence in Provence, RI, (on Ocnber 11, 208 Published Online: aly 2009 134 SMiekas reports. The assignments for this course included readings of behavioral acoounting stules puib- lished in a book edited by Bruins and DeCoster (1969). These behavioral studies used a variety of social science theories including theories fom communications, psychology, organizational be- havior, and sociology, as well as no theory at all. They also used a variety of research methods, including experiments, surveys, fick! interviews, and simulations. I found this course and readings tobe aminc-expanding introckiction to behavioral research on aocounting, oF to use Bob Ashton’s analogy, | felt like a kid in a candy store—they identified so many possibilities! ‘The sccond direction of my trip began in 1975 when I started my doctoral studies at Pitt under Jake Bimberg, This was an incredible experience! Jake was (and stil is) so broad and open- minded. I quickly moved! into his office to read the many books he had piled everywhere. I easily immersed myself in the behavioral accounting literature because Jake was a walking, talking incamation of that literature, ‘The 1970s was the beginning of cognitive psychology research on accounting as We KNOW it today: behavioral decision theory; lens madel, policy capturing, an heuristics an biases. It was a very exciting time, with each study providing new perspectives on and possibilities for behavioral accounting research, Both Pitt and Camegie Mellon University were very involved in the cogni tive revolution sweeping through psychology, and there were many famous cognitive psycholo- isis from whom to take classes, including Herb Simon, I became absorbed in the cognitive and ‘experimental literatures, which literally left me with many possible experiments to think about, ‘Over the next dozen or 80 years, I had the good fortune of doing a lot of experimental cognitive research with Jake, Barry Lewis, Ira Solomon, and Bill Waller on a variety of issues related 10 aukiting and financial and managerial accounting. During the 1970s the behavioral accounting literature changed direction because of the rise of ‘economics-based research on accounting. Behavioral research on financial accounting abruptly stopped in response to the article by Dopuich ancl Gonedes (1974) in the Journal of Accounting Research that reviewed capital markets research, In their article, they concluded that since capital markets are efficient, research on individual behavior is noc relevant. With only two major joumals {in accounting in 1974—Journal of Accounting Research and The Accounting Review—theit cone ‘clusion was a major blow to behavioral aocounting research, In retrospect their conclusion was a major error that misdirected behavioral accounting research for two decades. ‘Their error, fortu- nately, is now being corrected the subsequent birth and development of behavioral economics and finance have provided compelling evidence to (economics-based) accounting researchers that be- havioral accounting research is not imelevant! KPMG’s Research Opportunities in Auditing program stated in 1976 andl quickly became a major driver of behavioral auditing research due to its funding of research, access to participants, and freedom from criticism about doing behavioral research. Many of the auditing stcies initially funded by the ROA program experimentally investigated cognitive issues related t0 aut judge ‘ment and decision making, Behavioral research on management accounting began addressing issues related to economics because of the rise of analytic economics research—information economics stating in the late 1960s and agency theory in the late 1970s, The focus of the analytic research on building eco nomic medels of management accounting had both postive and negative influences on behavioral research on management accounting, The negative influence was experienced immediately be- ‘cause, as in the case of financial accounting, people in these economic models are assumed to be rational and their behavior in equilibrium. If these assumptions were true, then there is litle need for behavioral research. The positive influence of the analytic economic models of maniggement accounting was realized later, stating in the 1990s. Over time, research on management agcount= ‘ng provided analysis and evidence that these analytic economic models had! omitted variables, Behunional Research In Accounting, Volume 21, Nanber 2, 2009 American Accounting Association“What a Long, Interesting Tip it’s Been” throh the Belenional Accounting Literate us \which are prominently featured in behavioral theories. As discussed below, these omissions tlt- mately provided opportunities for behavioral research to demonsirate its value to management accounting, ‘The third direction of my trip began in the 1980s, when [headed in new directions in using theories and research methods. I began to use both economic and psychology theories in my research. For example, I and my coauthors investigated the opportunity costs of using heuristic ‘cognitive processes to make decisions based! on accounting information and in examining, how various incentive and auxiting mechanisms influence the truthfulness of communications about accounting information, I also tumed my attention to other fies in psycholozy—crosscultraly organizational, and social psychology —as a result of my increasing research interaction with Chee ‘Chow and Mark: Young. These new directions in theory led me © do some survey and case/iekd research, ‘The 1980s were both good and bad times for behavioral accounting research, It was a bacl time because behavioral accounting research was directed away from many major research uni- versities in response to the mania about efficient markets, rationality, and equilibrium. I, however, ‘was a good! time because the emergence of behavioral economics provided opportunities to pursue issues related to bounded rationality and market imperfections, which behavioral research is well Positioned to dos The emergence of behavioral economics in the 1980s and then behavioral finance in the 1990s gave credence to the value of behavioral accounting research, ‘The fourth and curent direction of my trip began in 1997 when I moved to Michigan State University. [felt like Ihad arrived at behavioral accounting nirvana! Sue Haka, Ranjani Krishnan, Joan Luft, and I quickly found lots to talk about and lots of research to do, Sue was soon to be the ‘editor of Behavioral Research in Accounting. Joan and I started some cognitive experimental studies in management accounting, and soon Ranjani was working with us. Our general direction ‘was 0 enrich understaning of how individuals’ bounded rationality andl accounting jointly infiue ‘ence how judgments and decisions systematically deviate fiom economic predictions, We and, others sought to entich economic models by identifying omitted variables such as cooperation, faimess, honesty, and mental models, The newest pat of this direction of my tip is working with Jake Bimberg and Casey Rowe in using social psychology and economic theories to investigate ‘management accounting issues that accur in cross-functional teams making nonroutine decisions. ‘believe that a good direction for behavioral accounting research is 10 conduct research that is informed by both behavioral and economic theories because this kind of research can get the attention of the mainstream of accounting researchers, who are focused on economics. AS Bob Libby has proposed, an important strategy to demonstrate the value of behavioral accounting research is for this esearch to systematically nibble away at sumptions in econcmic models of accounting, Models of management accounting are more likely to be complete and accurate when they are informed by both behavioral and economic theories, rather than by either behavioral or ‘economic theories, In closing, what a long, interesting trip it’s been for me through the behavioral accounting Titerature since 1970, and 1 look forward to continuing my tip. I greatly value receiving this award, and I will remember this moment on my trip for many years. Thank you. REFERENCES Bruns W., and D. DeCoser, als. 1969. Accounting andl Its Belunional Implications. New York, NY: McGrail DeCoster, D, and J. Fertakis. 1968, Budset-induoed pressure and its relationship to supervisory behavior. Joumal of Accowuing Research 6: 237-246, Behera Research In econuting, Volume 21, Nuanber 2, 2009 ‘American Accounting Association16 SMiekas Dopuch, N., and N. Gonedes. 1974, Capital market equilibrium, information production, and selecting ac ‘counting techniques: Theoretical framework and review of empirical work. Jeumeal of Accowuting ‘Research (Supplement) 12:.48-129. Feros, J. 1970. On communication, undersianing, and relevance in accounting reporting. The Accowating Review 44: 680-01, Behunional Research In Accounting, Volume 21, Nanber 2, 2009 American Accounting AssociationReproduced with permission of the copyright owner. Further reproduction prohibited without permission.