Testing the Rational Decision-Making Model through an Outsourcing Task

Abstract

Previous research on financial decision-making situations indicated that contextual aspects of financial information, such as framing, problem space and asset specificity influence the outcome. To assess the influence of these factors, an outsourcing task was used to survey the perceptions of accountants. The survey examined the effect of framing (positive/negative) with the inclusion of sunk and opportunity cost information across the decision task. The respondents were also presented with information regarding asset specificity - the extent to which assets are inexorably tied to the specific project or outsourcing agreement. In making the decision to outsource, the sunk cost effect, framing and asset specificity were found to be significant factors in influencing the decision outcome. The results however, were not fully consistent with the predictions of prospect theory in particular a reverse effect was found- in the negative frame, greater risk-avoidance was evident while in the positive frame, greater risk-taking was evident

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