What is "Need for Closure"?

1. 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)Presentation atThe AAA Annual Meeting 2008Anaheim, CaliforniaAugust 5, 2008

2. 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")

3. 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

4. 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

5. 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

6. 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…

7. 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.

8. "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 • We call the score with decisiveness omitted "DNFC2"

9. Implications of DNFC • Explains closed-mindedness • Political implications • Prejudice of all kinds • Relevant to professional judgment? • Auditors and other accounting professionals • Hypothesis formation and evaluation crucial for auditors

10. Connection to expertise? • May partially explain the development of auditors’ expertise. E.g., • Libby and Frederick (1990): More experienced auditors generate a larger set of possible explanations for the errors, increasing the likelihood of finding the actual cause of the error. • Kaplan and Reckers (1989): In initial planning, inexperienced auditors will follow a hypothesis confirming strategy.

11. Difference across firm ranks? • DNFC considered a stable personality trait, so no development expected • May be related to comfort with the decision-making environment in CPA firms • Accounting students relatively high in DNFC • Attrition may lead (or push) those too high in DNFC out of the auditing firm environment.

12. Study Phase I: Tests of Auditors’ Dispositional Need for Closure • RQ1: Do auditors at higher firm ranks differ from those at lower ranks as to their dispositional need for closure? • Tested in Cynthia Daily’s dissertation (2002)

13. Responses by Firm Affiliation

14. DNFC by Rank in Firm Mean Dispositional Need for Closure Scores by Rank Note: DNFC2 omits Decisiveness. ANOVAs significant at p < 0.0001 (for DNFC & DNFC2) For DNFC2, Tukey’s HSD post-hoc comparisons show all differences between ranks are significant at  = 0.05.

15. Phase II: Audit judgment experiment • Use professional auditors • Have them generate hypotheses in open-ended exercise • Important: more hypotheses increase the likelihood of a correct conclusion • Should be sensitive to time spent

16. Research Hypotheses • H1: Auditors who are lower in DNFC will spend more time on the deliberative, judgmental task of hypothesis generation, but not more time on simple non-deliberative tasks [based on our research with advanced accounting students]. • H2: Auditors who are lower in DNFC will generate more causal hypotheses. • H3: Auditors who are lower in DNFC will generate higher-quality causal hypotheses. • H4: Auditors high in DNFC will display greater confidence in their judgment given their level of achievement in terms of hypothesis generation or quality [i.e., unwarranted confidence].

17. Variables • DNFC using Kruglanski’s NFCS • Time spent on each task by the computer clock time • Modified in the event of interruptions • 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

18. 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.

19. Web-based experiment NFCS Hypothesis Entry Case

20. Debriefing questions When finished with hypotheses and "satisfied"

21. 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

22. Results • H1: Auditors who are lower in DNFC will spend more time on deliberative, judgmental tasks, but not more time on simple non-deliberative tasks. p = 0.008, one-tailed

23. Results • H2: Auditors who are lower in DNFC will generate more causal hypotheses. The slope is marginally significant at p = 0.07

24. 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.

25. 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

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

27. Supplemental analyses • which subscales may drive this confidence effect? • Predictability, Need for Order at  = 0.05

28. Supplemental analyses cont’d. • Which subscales may drive confidence? • Predictability, Need for Order at  = 0.05 • Not Closed Mindedness, Ambiguity (p>.10)

29. Supplemental analyses cont’d. • Which subscales drive time spent?

30. 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 • We have new data (next slide)

31. Our new validation data • We followed up in 2008 with seniors and grad accounting students whom we had tested in 2005 • Test-retest correlation across time: r = 0.71 for DNFC2 • Mean increased by 3 pts, NS (p = 0.24) • Power of this paired t-test is

32. 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?

33. 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.

34. 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.

35. Thanks for your comments!