Individual differences in managerial accounting judgments and decision making

Managers are influenced in their decisions by the information provided by managerial accountants. Two typical examples from textbooks are the irrelevance of sunk costs and, more recently, the affect of knowing the outcome of a decision or revised budget forecast. Individual differences in the cognitive ability of decision makers to use information can lead to systematic differences in judgments. We identify and label one of these individual cognitive differences comprehensive thinking ability: the ability to think about multiple paths, branches or alternatives. Significant comprehensive thinking ability is likely to mitigate systematic differences in judgment in many contexts. We report the results of a series of studies using a variation on the investment trap (sunk cost or irrelevant cost) problem and a probability revision task. The findings suggest that comprehensive thinking ability may also explain other common systematic differences in judgment.