The Psychological Attraction Approach to Accounting and Disclosure Policy

28 Pages Posted: 18 Mar 2009

See all articles by David A. Hirshleifer

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Siew Hong Teoh

UCLA Anderson School of Management

Date Written: March 15, 2009

Abstract

We offer here the psychological attraction approach to accounting and disclosure rules, regulation, and policy as a program for positive accounting research. We suggest that psychological forces have shaped and continue to shape rules and policies in two different ways. (1) Good Rules for Bad Users: rules and policies that provide information in a form that is useful for users who are subject to bias and cognitive processing constraints. (2) Bad Rules: superfluous or even pernicious rules and policies that result from psychological bias on the part of the 'designers' (managers, users, auditors, regulators, politicians, or voters). We offer some initial ideas about psychological sources of the use of historical costs, conservatism, aggregation, and a focus on downside outcomes in risk disclosures. We also suggest that psychological forces cause informal shifts in reporting and disclosure regulation and policy, which can exacerbate boom/bust patterns in financial markets.

JEL Classification: G00, G28, G38, H10, K22, M4, M44

Suggested Citation

Hirshleifer, David A. and Teoh, Siew Hong, The Psychological Attraction Approach to Accounting and Disclosure Policy (March 15, 2009). Available at SSRN: https://ssrn.com/abstract=1359967 or http://dx.doi.org/10.2139/ssrn.1359967

David A. Hirshleifer (Contact Author)

Marshall School of Business, USC ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.uci.edu/dhirshle/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Siew Hong Teoh

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/teoh

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