We explore the extent to which aspirations – such as those forged in the course of social interactions – explain ‘puzzling’ behavioral patterns in investment decisions. We motivate an aspirational utility, reminiscent of Friedman and Savage (1948), where social considerations (e.g., status concerns) provide an economic foundation for aspirations. We show this utility can explain a range of observed investor behaviors, such as the demand for both right- and left-skewed assets; aspects of the disposition effect; and patterns in stock-market participation consistent with empirical observations. We corroborate our theoretical findings with two novel laboratory experimental studies, where we observed participants’ preference for skewness in risky lotteries shift as lab-induced aspirations shifted.

ABSTRACT Using Public Company Accounting Oversight Board (PCAOB) inspection data from 2006 to 2018, we examine the use of auditor‐employed specialists in audit engagements. First, we find that the use of specialists is increasingly prevalent and related to clients’ size and complex accounting estimates. Second, the use of specialists is positively associated with the incidence of audit process deficiencies (identified by PCAOB inspections) but is not associated with output‐based audit‐quality proxies (restatements or absolute discretionary accruals). Hence, although process deficiencies are more likely to occur in engagements with higher use of specialists, financial reporting quality is not negatively impacted. Third, the use of specialists is positively associated with the likelihood of goodwill impairments and negatively associated with engagement profitability. Finally, cross‐sectional tests suggest that board accounting expertise is a salient condition for more effective use of specialists. Collectively, our findings align with concerns noted by the PCAOB and prior experimental and survey studies. Although specialists assist auditors with the audit of complex estimates, engagements with comparatively high specialist use entail an incremental risk of audit process deficiencies.