The Effect of Asymmetric Cost Behavior and Presentation Formats on Costs Prediction Accuracy: An Explanation of Brunswick's Lens Model

This study investigated the effects of cognitive bias factors on the quality of judgment and decision making in cost prediction. In particular, we conduct a laboratory experiment with a 2×4 design mixing a within-subjects condition with a between-subjects condition. The sample of this study is 78 managers with financial expertise and graduate students, and the period of data collection is 2016. In this study, two independent variables that affect the accuracy of judgment are manipulated as follows: (1) the cost structures or degree of cost asymmetry (i.e. non-sticky, semi-sticky, sticky and anti-sticky) and (2) the presentation format of financial information (i.e. table vs. graph). Also, the dependent variables of research are as follows: 1. quality or accuracy of cost prediction (mean absolute error of the individual`s predictions) and 2. variables of Brunswick`s lens model. The main hypotheses test is performed using a repeated-measures ANCOVA and pairwise comparison. In accordance with our expectation, participants are more likely to recognize and predict accurately symmetric cost behavior (non-sticky) rather than asymmetry cost behavior (i.e. sticky and anti-sticky). In other words, they mentally apply a symmetric model to predict changes of asymmetric costs. Moreover, the presentation of information expressed as table allows more accurate predictions. Also, the results show that presentation of information in table rather than graph is more beneficial for effective perception of asymmetric cost behavior.