Wharton article: Biased Expectations: Can Accounting Tools Lead to, Rather than Prevent, Executive Mistakes?

March 20, 2008

Here’s an interesting article (with links to underlying studies) from Knowledge@Wharton summarizing two studies by Gavin Cassar.  In one, he observes that (unsuprisingly)  ”internal accounting report preparation significantly improves forecast accuracy“.  The catch is: “the accuracy benefits from internal reports preparation are only observed for firms with high uncertainty” in forecasting.

In his second study, he shows how some of these same tools can lead entrepreneurs to adopt overly optimistic outlooks for their company’s prospects.  I wonder if these entrepreneurs are using sensitivity and risk analysis to vet their forecasts, or are they getting a number they like, and calling it quits?

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