What is "Need for Closure"?

Auditing Judgment and Dispositional Need for Closure: Effects on Hypothesis Generation and ConfidencebyCharles D. Bailey (University of Memphis)Cynthia M. Daily (University of Arkansas, LR)Thomas J. Phillips, Jr. (Louisiana Tech University)BRIA 2011

What is "Need for Closure"? • Decision making under uncertainty • Information search and hypothesis generation are early stages of DM process • When to truncate the process and reach a decision (closure)? • Varies with circumstances and individual dispositions ("individual differences")

Hypothesis Generation and Testing(Lay Decision Making) • Motivational implications • Hypothesis-generation process is prompted by an interest in acquiring knowledge • NFC is a motivation that terminates this process • Decision maker feels "confident" that the hypothesis is true or false

Situational vs Dispositional NFC • Situational NFC • Varies within a person across situations • Increased by • Time pressure to render a decision or take action • Physical Discomfort, unpleasant task • Costly, difficult or otherwise effortful information processing • Stressing the value of order and coherence • Decreased by • Fear of invalid decision • Intrinsic enjoyment of activity • Dispositional NFC (Kruglanski and colleagues) • "Personality" difference • Stable across situations • Measured by Kruglanski’s instrument • Our main focus

Characteristics of High DNFC • Early cessation of hypothesis development • combined with a high level of confidence in the decision • Prompt decision making • brings closure • Strong sense of urgency • Discomfort with ambiguous circumstances • Inclination to "seize" and "freeze" on judgments or decisions

Examples of items from DNFC Scale (with 5 factors)*(http://www.wam.umd.edu/~hannahk/nfcscale.html) • Preference for order • I enjoy having a clear and structured mode of life. • I find that a well-ordered life with regular hours suits my temperament. • Preference for predictability • I like to have friends who are unpredictable. • I don’t like to go into a situation without knowing what I can expect from it. • Continued…

Examples of DNFC Scale items, continued • Discomfort with ambiguity • I don’t like situations that are uncertain. • I feel uncomfortable when someone’s meaning or intention is unclear to me. • Closed mindedness • I feel irritated when one person disagrees with what everyone else in a group believes. • I dislike questions that could be answered in many different ways.

"Decisiveness" and its status • Decisiveness • When faced with a problem, I usually see the one best solution very quickly. • I usually make important decisionsquickly and confidently. • Recently re-evaluated as a component of NFCS • More of a "positive" facet • Cultural differences • Ability-related content (Roets and Van Hiel 2007) • We omit Decisiveness, consistent with other recent studies.

Implications of DNFC • Explains closed-mindedness • Political beliefs • Prejudice of all kinds • shopping behaviors as price comparison and use of coupons. • Relevant to professional judgment? • Auditors and accounting professionals • Hypothesis formation and evaluation are crucial for auditors

Are accountants high in DNFC? • Developers of the Need for Closure Scale used accounting students in the validation sample • Accounting students relatively high in DNFC, as they hypothesized • DNFC considered a stable personality trait, so no development expected

Study Phase I: Tests of Auditors’ Dispositional Need for Closure • RQ1: Is the DNFC of professional auditors “high,” similar to the level found in advanced accounting students by Webster and Kruglanski (1994)? • RQ2: Do differences in DNFC exist across professional ranks of auditors?

Responses by Firm Affiliation

Comparison to Student Sample • Advanced accounting majors at the U of Maryland scored a mean of 173.3 (n = 63) [Includes Decisiveness] • Studio art majors scored 139.2 (n = 51). • Another group of adults ranging in age from 24 to 56 years, scored a mean of 154.89 (n = 172) • Our participants’ overall mean is 155.8, SD=17.12 • All three of our groups score between the two extremes, are statistically different from either reported number. • 95% CI’s: • Partners 149.2–154.63 • Managers 153.4–160.4 • lower ranks 159.1–167.8 • This places our auditors clearly in the moderate range.

DNFC by Rank in Firm (RQ2) Mean Dispositional Need for Closure Scores by Rank Note: Our study omits Decisiveness. ANOVA significant at p < 0.0001 Tukey’s HSD post-hoc comparisons show all differences between ranks are significant at  = 0.05.

Why the differences across ranks? • May be related to comfort with the decision-making environment in CPA firms • Attrition may lead (or push) those too high in DNFC out of the auditing firm environment. • We could not hypothesize this result • The opposite effect might have been at work, with “artistic types” finding the work boring.

Phase II: Audit judgment experiment • Can DNFC affect an important auditing judgment? • Use professional auditors • Have them generate hypotheses in open-ended exercise • Important: Greater number of hypotheses increases the likelihood of a correct conclusion • Should be related to time spent

Research Hypotheses • H1: Auditors who are lower in DNFC will spend a greater percentage of their time on the deliberative, judgmental task of hypothesis generation, than on simple non-deliberative tasks. • H2: Auditors who are lower in DNFC will generate a greater number of causal hypotheses. • H3: Auditors who are lower in DNFC will generate higher-quality causal hypotheses. • H4: Auditors higher in DNFC will display greater confidence in their judgment despite their lower levels of achievement in terms of hypothesis quantity or quality.

Variables • DNFC using Kruglanski’s NFCS • Time spent on each task by the computer clock time • Confidence: • "How confident are you that your hypotheses include the correct reason for the discrepancy? Enter a number between 0 = ‘not at all’ and 100 = ‘completely.’" • Quality of hypotheses rated blindly by two coauthors and differences reconciled; correlated with third judge, an experienced auditor.

Participants • Solicited via mail to go to website • AICPA would not sell e-mail address • Very difficult to induce people to go to a website via mailed request (per Don Dillman, personal communication. • 1500 requests brought 53 responses • This is not a survey! Volunteers for experiment! • Few if any auditing judgment studies use random sample. At least ours is diverse. • Our respondents were motivated, serious, not "trapped" in a firm training session.

Web-based experiment NFCS Hypothesis Entry Case

Debriefing questions When finished with hypotheses and "satisfied"

Participants and Response Rates • Firm size (large) • Only 8 from firms in the 1001–5000 employee range, the other 45 being from firms with over 5000. • By rank within their firm • 31 partners • 16 managers • 3 directors, and 3 "others." • Gender: N.S., Chi-square = 2.3, p = 0.13

Results • H1: Auditors who are lower in DNFC will spend a greater percentage of their time on the deliberative, judgmental task of hypothesis generation, than on simple non-deliberative tasks. p = 0.008, one-tailed

Results • H2: Auditors who are lower in DNFC will generate a greater number of causal hypotheses. The slope is marginally significant at p = 0.07 (one-tailed)

Results • H3: Auditors who are lower in DNFC will generate higher-quality causal hypotheses. • Quality can be measured in at least three ways: • Average quality indicates the general level of thinking, and clearly contributes to the total quality of the hypothesis pool. • Maximum quality is an indication of the likelihood that the correct hypothesis will be in the pool. • Total quality indicates the size of the "net" that is cast to find the actual cause.

Average Quality Points vs. DNFC 6.00 5.00 4.00 2 R = 0.0662 3.00 2.00 1.00 0.00 70 90 110 130 150 170 Results, H3 (Quality vs. DNFC2) • All three are significant • Average at p = 0.03 • Max, Total at p = 0.01 • Correlations ≈ .3

H4: Auditors high in DNFC will display greater confidence in their judgment given their level of achievement …. (p = 0.02)

Validity threats? • Construct validity: Is DNFC different from ambiguity intolerance? • This is part of the scale, but shown not to drive our results • Webster & Kruglanski (1994) found correlation between the NFCS and the Intolerance of Ambiguity Scale was low and positive (r = .29). • Ambiguity tolerance is not a well-defined and accepted construct. • Internal validity: Is the decline across ranks a result of maturity/aging? • Emerging research in psych literature shows an increase with age, making our trend even more surprising.

Is “DNFC effect” really due to rank? • the straightforward substitutions of rank for DNFC as the independent variable never yield significant results (alpha = 0.10) for any of the hypotheses. • In a multivariate analysis using a general linear model with a vector of the four dependent variables (percentage of time spent on hypothesis generation, number of hypotheses generated, quality of hypotheses, and confidence), firm rank is not significant (p = 0.88), but DNFC is significant (p = 0.03). • Finally, separate analyses of the 31 partners and the 22 other participants each show the same patterns of significance reported above, but of course with reduced statistical power.

Is “DNFC effect” really due to experience? • Our participants are rather homogeneous in experience, minimizing the potential for confounding experience effects. Partners and managers constituted 89 percent of the sample, and the task was simple enough not to require much experience. • In Study I, we showed evidence that DNFC is not a function of accounting experience within each rank (see Figure 1, next slide). Thus, the consistent effects that we have just described after factoring out rank cannot be due to experience effects within each rank.

DNFC vs. Years of Experience

Contributions • Introduces an established psychological theory to auditing research • DNFC shown to affect important auditing judgment • Consequences for the conduct of an audit • Factor is somehow related to rank in firms • Practical applications? • Helpful in tailoring audit programs to overcome any limitations on information processing characteristics? • Useful in forming audit teams? • Helpful in customizing auditor training? • Learn compensating techniques?

Questions for future research • Does selection drive the difference across ranks? • Expectation is "yes" if DNFC is a stable personality factor • NFC also affects group decision processes • emergence of a behavioral syndrome described as group-centrism (Kruglanski et al. 2006) • pressures to opinion uniformity, encouragement of autocratic leadership, in-group favoritism, rejection of deviates, resistance to change, conservatism, and the perpetuation of group norms. • borne out by laboratory and field research in diverse settings.

Future research, cont’d…. • What are other implications in accounting and auditing? • Are higher DNFC persons better suited for any task? • Many other areas to investigate • Investors’ decisions • Credit decisions, etc.

What is "Need for Closure"?