Knowledge@Emory

Decision-makers love numbers. Conventional wisdom holds that they will begin polishing their stamps of approval as a well-quantified proposal passes close to their desks. Goizueta professors Kathryn Kadous and Kristy Towry and University of Texas professor Lisa Koonce wondered if decision-makers were that easily persuaded by numbers.

As it turns out, they are not. In their paper, “The Persuasive Effects of Quantification in Managerial Judgment,” Kadous, associate professor of accounting, Towry, assistant professor of accounting, and Koonce show that when a manager receives a presentation with numbers, there’s a positive effect, but there’s also a potential off-setting effect that’s negative.

The researchers develop and test a process-based model of how quantification influences persuasion. Through two experiments using 114 MBA students with previous work experience, they studied conditions that are more and less likely to result in critical analysis of the details of the quantified proposal. For instance, the preparer has incentives inconsistent with the firm’s interests or the numbers are more subjective than objective. Towry and her co-authors discover that decision-makers do not always put blind faith in the numbers.

“If you put in numbers that aren’t based on good, hard facts you’re worse off than if you hadn’t provided numbers at all,” explains Towry. “There’s a positive effect that at first you make yourself look more competent. But if those numbers are based on a lot of subjective guesses, you’re going to invite more scrutiny. Similarly, decision-makers are smart enough to look at the incentives facing the person who prepared the proposal. If that person has an incentive to try to mislead, they’re going to distrust the numbers even more.”

For the full story, see Knowledge@Emory at http://knowledge.emory.edu/ and go to the Finance and Investment category. Non-registered users should click on “sign up” on the homepage for free registration.—Diana Drake

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