Expressed confidence and skepticism: The effect of expressed confidence on auditor judgments

I examine the effects of clients' expressions of confidence on auditor judgments. The confidence heuristic suggests decision makers use expressions of confidence as a cue for reliability (Price and Stone 2004). However, Van Swol (2009) posits that in some environments decision makers may use expressions of confidence as a cue for deception. The auditing environment provides a unique setting to examine this assertion because the auditing standards prescribe that auditors should maintain a skeptical mindset. One interpretation of the auditing standards suggests auditors' responses to expressions of confidence may be dependent on cues from the control and business environment. When a client has a weaker control and business environment, auditors may use expressed confidence as a cue for deception. When a client has a stronger control and business environment, auditors may use expressed confidence as a cue for reliability. I use an experiment to test these hypotheses. Results indicate that auditors do not use expressed confidence in their decision making when the client has a stronger control and business environment. In contrast, results indicate that auditors use the confidence heuristic when the client has a weaker control and business environment. The results provide new theoretical insights into decision makers' use of expressed confidence that extend both accounting and psychology research and may be useful to standard setters.