What are Ethics • Moral Values=beliefs about what is good vs bad, right vs. wrong • E.g., it is wrong to lie • Ethics = standards of behavior consistent with one’s moral values • E.g., I should not lie • Decision= Intention for behaving consistently with ethics • I decide not to lie even if I am disadvantaged by lying • Behavior= Action • not lying
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What are Ethics Moral Values=beliefs about what is good vs bad, right vs. wrong E.g., it is wrong to lie Ethics = standards of behavior consistent with.
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What are Ethics• Moral Values=beliefs about what is good vs bad,
right vs. wrong • E.g., it is wrong to lie
• Ethics = standards of behavior consistent with one’s moral values
• E.g., I should not lie
• Decision= Intention for behaving consistently with ethics
• I decide not to lie even if I am disadvantaged by lying
• Behavior= Action • not lying
Type of Ethics Rightness is defined by… Basis of actions
End Results -effect/consequences it has-utility of ends
--Actions are aimed to promote (collective) happiness, --Actions that promote more happiness are more right
Duty -obligations to apply universal standards in all situations-intentions of actor rather than effects
--Actions that promote virtue rather than pleasure--behaviour should be based on principles/rules
Social Contract
--Customs or norms of a community
--Community defines morality which defines right & wrong--Duty binds individual to community--What is best for community is ultimate standard
Personal-isitc One’s conscience -stand up for what one believes-no absolute formulas for living
Sources determining Managerial Ethics
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How sources affect Ethical Behavior - I• Reward System
– Anticipation of healthy reinforcement for following an unethical course of action, especially if no punishment is expected.
• Role conflict in Code of Conduct– “Bureaucratic” role as an organizational employee is at
odds with one’s role as the member of a profession.
• Market: Competition– Stiff competition for scarce resources.– Temptation to make unethical decisions in situations in
which essentially no competition exists.
Bias in judgments
What increases biases in judgments
Ambiguity
Seeking Approval
Attachment
Familiarity
Escalation
Discounting
Disclosure
Type of Judgment
Ambiguity in accounting• Study of approx 50 tax preparers shows 83%-
976% difference in how much a family owes in yearly taxes – Ambiguity in Income, deductibles, depreciation
schedule
• Declaring items as revenue vs. expenses (early vs. later) has implications on how stockholders react
• Firms hire based on how auditors interpret accounting problems
Bias in Judgment
Attachment
Students role playing as plaintiffs (in an accident) predicted that they would receive larger awards from the judge than did those playing the role of defendants
Self-serving Bias
Types of training & self-serving bias
Bias in judgments
Writing essays arguing for other side
Learning about self-serving biases
Reading case FIRST before being assigned the role of plaintiff or defendant
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Seeking approval
• You are even more biased toward yourself when someone else is biased toward your opinion
• Implications for overly biased judgments– E.g., when auditors make judgments by themselves first
vs. merely “endorsing” judgments that clients already made (they are even more biased toward their self-serving biases)
– Decide between negatively affecting company executives (clients) vs. company investors (not clients)
• Discounting– Favour immediate consequences vs. delayed uncertain
consequences (see Margin Calls movie)• E.g., damage to relationship, loss of contract, unemployment
• Escalation– Sum of small biases leads to large biases (i.e.,
corruption)– (see Margin Calls movie)
• Study of buyer, seller, buyer auditor and seller auditor– Seller valued firm more than buyer– Auditors were more biased toward client interests– Sellers auditors valued firm more than buyer auditor– Reward for accuracy for auditors did not eliminate
the bias they already had
Auditor Attachment affects Bias in Judgment
• Auditors who were hired by the company were more likely to conclude that the company complied with the GAAP rules rather than those auditors who were hired by the company’s business collaborator
• Experience of auditor did not decrease the bias
Auditor Attachment affects Bias in Judgment
Bias in Judgment
Disclosure of conflict of interest
•Estimator got paid for accurate judgments •Advisor got paid for how high estimator’s estimate was (i.e., advisor had a incentive to make higher judgments)
Study of Advisors vs. estimators of how much $$ in jar
Bias in Judgment
Disclosure of conflict of interest
Results
•Disclosure of advisor’s motive to estimator did not lead estimators to discount advisor’s advice and make lower judgments so advisors made more than estimators
Bias in Judgment
Disclosure of conflict of interest
•Advisors who were given incentives to mislead estimators to make high judgments and whose motives were disclosed to estimators were more biased than those whose motives were not disclosed.
•Advisors seemed to adjust for estimator’s discounting and made even higher judgments
Results: Continued
Reduce Bias in Judgment
Legal Reform
Increase Disclosure Reduce Attachment
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Legal reform in accounting should remove the incentive for being attached and should take
into account the negative effects of disclosure to the organization