Discussant's response to "A Behavioral-economics approach to auditors' risk assessments";

              Discussant's Response to "A Behavioral-Economics Approach to Auditors' Risk Assessments"
Peter R. Gillett
University of Kansas (former Partner, Grant Thornton, UK) Introduction
Let me begin by thanking Raj Srivastava for inviting me to act as practitioner discussant for Professor Waller's paper. Many of you know already that I am in the course of making a transition from practitioner to academic. Let me express the hope, then, that Raj's asking me to act as practitioner discussant is a reflection of his appre­ciation
of my previous work, and not a comment on his perceptions of my progress in this transition.
I propose to discuss this paper by regarding it as an onion. By this I do not mean, of course, that it has a strong smell, that it leaves a bad taste in the mouth, or that it will make our eyes water. Rather, I mean that I intend to examine it in a number of layers, beginning with the outside.
The abstract tells us that real agents are rationally bounded, and that the audit risk model and auditors' risk assessments are inconsistent with a Bayesian rational choice model. I do not find the practitioner within me resisting these views at this level: I find this an acceptable onion.
However, as we peel off this outer skin in order to examine the onion within, we might note that it is a somewhat thin skin. I have not generally found that auditors as individuals are more rational than others, although they may be more analytical, and perhaps more professionally skeptical. Professional standards nowhere assert that the audit risk model is, or should be, consistent with a Bayesian rational choice model. The many potential causes of suicide, despair and divorce among audit partners do not, in my experience, include a deep-rooted concern that our risk assessments might fail to obey the normative canons of Bayesian thought. So it is fair (and may be reasonable) to ask whether these are important and interesting findings. Let us proceed to do so.
Economizing with the truth?
At the second layer of examination we find that Professor Waller is not content simply to identify the non-Bayesian nature of auditor decision-making regarding risk assessments, but is concerned to offer an alternative model: the behavioral-economic model. This model differs from strict rational choice models insofar as it recognizes that:
• Agent errors are possible.
• Choice processes can be improved.
• Convergence with a strict rational choice model may not be worth the agent's incremental costs.
• Divergence from a strict rational choice model need not be presumed to be error.
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