The Application of Perceptual Bias to Negative Compensation Situations in Management Accounting Research

Abstract

In this article, we provide evidence that even when Murphy's Law is objectively untrue, because of sampling bias, people perceive the law as true, and this perceptual bias has far-reaching implications in management accounting research. A corollary to Murphy's Law is: “The other lane always moves faster than my lane.” A manager who is aware of this perceptual bias will try to structure her budget cutbacks and all other “negative compensations” in such a way that her employees perceive that the cutback applies to everyone, not just to themselves.

The findings of our study support the wisdom that, whenever managers must implement managerial plans that will be perceived as “negative,” the plans should be implemented all at once. Spreading the implementation over a period of time produces more discontent on the part of the personnel affected. The findings lend credence to a generalization that peoples’ discontent is minimized when the number of observations (and thus the number of chances for forming a negative perception) of undesirable events is minimized.

Citation

Davis, H.Z., Appel, S. and Lee, J.Y. (2007), "The Application of Perceptual Bias to Negative Compensation Situations in Management Accounting Research", Lee, J.Y. and Epstein, M.J. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 205-215. https://doi.org/10.1016/S1474-7871(07)16007-X