Beware the Mental Pitfalls: Confirmation Bias in Accounting

Abstract

Confirmation bias seems to be widespread in many areas of our everyday life, ranging from political discussion and opinion to many aspects of business, including accounting. In the field of financial investing, Lazaroff (2016) found that when making financial investment decisions, investors have a habit of collecting evidence that confirms their decisions, instead of taking into consideration all available evidence. The effect of confirmation bias can be even more significant with prevailing beliefs. The reason for that is because people are more likely to accept information that confirms existing beliefs while more carefully scrutinizing evidence that questions those beliefs.