Cognitive biases in accounting judgment and decision making: a review, a typology, and a future research agenda

Abstract

Cognitive biases, i.e. systematic patterns of deviation from rationality, significantly affect accounting judgment and decision making (such as misinterpreting financial data), leading to adverse consequences for businesses, organisations, and society. Despite widespread acknowledgment of these effects in behavioural accounting research, there is a noticeable absence of a comprehensive review of cognitive biases. We reviewed 139 accounting articles dealing with cognitive biases in accounting judgment and decision making. We organise the literature according to the impact of cognitive biases among audit, financial accounting, and management accounting disciplines and related tasks. In doing that, we provide a typology of biases in accounting judgment and decision making considering their different antecedents – namely, easy attribution biases, emotional-driven biases, and frame dependence biases. Moreover, a future research agenda is proposed. This includes exploring overlooked biases, studying biases that may positively impact specific tasks, examining interactions and conflicts between biases, and exploring the interaction between professionals and supporting technologies (e.g. Artificial Intelligence) in understanding cognitive biases’ study, formation, and reduction.