Juror decision-making in professional liability cases: A model and tests in the audit litigation setting

Auditors and other professionals currently face a litigation crisis. An important cause of this crisis is that auditors' decision and actions are evaluated in light of an ill-defined standard of care and in hindsight. In this dissertation, I develop a model of juror decision making for professional negligence cases and test it in the auditing setting.;The model is unique in audit litigation research in at least four respects. First, the model explicitly recognizes the difference between hindsight and outcome effects. Hindsight effects occur when a decision maker believes the reported outcome to have been more likely than it really was; outcome effects occur when a person is evaluated less positively in the presence of negative outcome information. I posit that hindsight effects are a cause of outcome effects.;Second, the standard of care to which jurors hold auditors is identified as an additional source of bias in evaluations. Because professional standards are necessarily open to interpretation, the outcome description can influence the standard of care. Third, in spite of the ambiguity in the standard of care, the amount of work that an auditor does is posited to moderate evaluations of auditors. Fourth, a motivational cause of hindsight and outcome effects is incorporated.;Experimental results support the model in that jurors' perceptions of the extent of work that auditor should do in general, as well as the probability of audit failure accompanied by investor losses, are biased by outcome information. Further, effects of the presence of outcome information on evaluations of auditors are captured by participants' biased estimates of the probability of loss and the standard of care. These results provide evidence that outcome effects represent bias in audit litigation settings, and that bias can be exacerbated by changes in the standard of care. Further, jurors attend to the amount of work that an auditor does. Results of tests designed to address the motivational cause of the effects are mixed. In particular, motivations seem to bypass hindsight effects and work directly on outcome effects.