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Journal of Management Control

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01.04.2015 | Original Paper

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

verfasst von: Christine R. Ohlert, Barbara E. Weißenberger

Erschienen in: Journal of Management Control | Ausgabe 1/2015

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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.

Vorheriger Artikel Managerial incentives for capacity investment decisions

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The term ‘base-rate neglect’ is famous thanks to numerous publications of Kahneman and Tversky (e.g., Kahneman and Tversky 1973, 1996). Nevertheless, some authors use the notion ‘base-rate fallacy’ (e.g., Bar-Hillel 1980; Birnbaum and Mellers 1983; Macchi 1995; Koehler et al. 1996), whereas other use the term ‘base-rate neglect’ (e.g., Gigerenzer and Hoffrage 1995; Cosmides and Tooby 1996; Sloman et al. 2003; Dohmen et al. 2009).

Please note that in this paper two notions are used synonymously to refer to the two cognitive systems: System 1 (experiential system) and System 2 (rational system). However, in the related literature on dual-process theories, numerous terms and definitions exist. For a review, see e.g., Stanovich and West (2000), or Sadler-Smith (2009).

The term ‘visual representation’ is used in accordance with Lurie and Mason (2007) who describe visualization as a process that involves the selection, transformation and presentation of data into a visual representation so that exploration and understanding of information is greatly facilitated for human thinking.

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Titel: Beating the base-rate fallacy: an experimental approach on the effectiveness of different information presentation formats
verfasst von: Christine R. Ohlert
Barbara E. Weißenberger
Publikationsdatum: 01.04.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: Journal of Management Control / Ausgabe 1/2015
Print ISSN: 2191-4761
Elektronische ISSN: 2191-477X
DOI: https://doi.org/10.1007/s00187-015-0205-2

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