Prospect Theory in Governmental Accounting: Implications for the Budgeting Process at the Local Level.
Date of Award
Doctor of Philosophy (PhD)
Nicholas G. Apostolou
Small local governmental units are responsible for allocating resources on behalf of a substantial portion of all United States citizens. The research reported here investigates the effects of presentation format (or framing) on decision preference in a governmental resource allocation context. The subjects represent a population of governmental units which has not received prior research attention--small local governments. Budget preparers were asked to choose among objectively identical alternatives, which differed in presentation formats. The cases used to investigate the effects of presentation were modelled after Kahneman and Tversky's (1979) seminal work in prospect theory, which addressed violations of expected utility theory. The survey's approximately 50% response rate provided results indicating that the subjects of this study cannot be considered "rational decision makers" as defined by the well accepted expected utility theory. However, most of their decision behavior could be explained with the concepts of prospect theory. The implications of this research include the need for further investigation of the resource allocation process of small local governments. Future research should focus on development of a resource allocation system which is not prone to manipulation as a result of the mere presentation of the decision problem and its alternatives. The fact that approximately 25% of the United States population is served by these small governments suggests the need for continued research.
Mckenzie, Karen Sue, "Prospect Theory in Governmental Accounting: Implications for the Budgeting Process at the Local Level." (1989). LSU Historical Dissertations and Theses. 4733.