THE NUMERICAL COGNITION BIAS AND ITS CONSEQUENCES ON ACCOUNTING DECISIONS

Abstract

This theoretical essay is dedicated to the further study of numerical cognition and discussion of the presence of bias arising from it within the accounting environment. Accounting provides information to ensure decision-making which is likely to be influenced by shortcuts or cognitive biases. Decisions are made faster and not necessarily more correct. Research in management accounting has traditionally been influenced by neoclassical economics theory, whose main assumption is economic rationality. Cognitive theory emerges as a counterpoint to the rationalist conception of action by showing that humans make use of heuristics in order to make a decision. Although it is valid and useful in certain ways, it can cause systematic distortions of judgment induced by cognitive biases. The numerical cognition characterizes the recording and processing information about numbers. The deriving shortcuts characterize the bias. Examples can be given through the processing errors and numerical coding of numbers ending in the digit 9 or numerical comparisons, which leads to misperceptions about the true magnitude of this number. Whereas that decision maker is a human being capable of making decisions in any environment, the cognitive biases present in their decisions also will be present in the accounting environment. Academic studies show a strong tendency to use the numerical cognition bias in the financial statements, confirming the need to understand the complexity of cognitive processes and their influence on the decision-making process.

Keywords: Behavioral accounting. Cognitive biases. Numerical cognition.