Tolerance for Ambiguity, Uncertainty Audit Qualifications and Bankers' Perceptions

Abstract

Using 24 bankers as volunteer subjects, this study examined the effects of tolerance for ambiguity, a personality variable, on bankers' perceptions of loan risk. Subjects who were classified as scoring high and low on tolerance for ambiguity on the basis of a median score split on MacDonald's version of Rydell and Rosen's scale were given identical financial information about a company including a footnote disclosure on an uncertainty regarding pending litigation and a “subject to” audit qualification. They were requested to estimate interest rate premiums they would recommend for a loan application. The subjects' estimates of interest rate premiums were used to operationalize loan risk. Tolerance for ambiguity affected subjects' perceptions of loan risk, with individuals low on tolerance for ambiguity requiring higher interest rate premiums than individuals high on tolerance for ambiguity.

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