ABSTRACT Firms often use causal models to align decision-making with strategic objectives. However, firms often operate in changing environments such that an accurate causal model can become inaccurate. Prior research has not examined the consequences that a change in the accuracy of causal models may have for managerial learning. Using an experiment, we predict and find that providing an accurate causal model positively affects managerial learning, and this positive effect is not reduced by encouraging a hypothesis-testing mindset (HTM). However, when the model subsequently becomes inaccurate, we predict and observe that providing a causal model alone negatively affects managerial learning, although this effect is partially mitigated by additionally encouraging a HTM. Our results can inform designers of control systems about the potential implications of providing a causal model when its accuracy changes over time and demonstrate how simple encouragement of a HTM moderates the effects of providing a causal model. Data Availability: Contact the authors. JEL Classifications: C91; M41.

The balanced scorecard is one of the major developments in management accounting in the past decade (Ittner and Larcker 2001). Lipe and Salterio (2000) find that managers ignore one of the key scorecard features, the inclusion of measures that are unique to the strategic objectives of a business unit, when making performance evaluation judgments. This study identifies and tests two approaches to reducing this “common measures bias.” We examine whether increasing effort via invoking process accountability (i.e., requiring managers to justify to their superior their performance evaluations) and/or improving the perceived quality of the balanced scorecard measures (i.e., via an independent third-party assurance report on the balanced scorecard) increases managers' usage of unique performance measures in their evaluations. Results suggest that either the requirement to justify an evaluation to a superior or the provision of an assurance report on the balanced scorecard increases the use of unique measures in managerial performance evaluation judgments. Implications for theory and practice are discussed.

ABSTRACT Toward the goal of reconciling conflicting arguments on whether performance-based incentives facilitate or impede divergent thinking, we identify a feature common to prior demonstrations of negative incentive effects: they generally involve tasks with only one correct solution. Our first experiment replicates a negative incentive effect when insight problems require “bottom-up” divergent thinking from an unexpected resource to the problem it is uniquely equipped to solve, whereas our second experiment finds a positive incentive effect in the more general case of problems that enable “top-down” divergent thinking from a problem to multiple potential solutions. We also observe a positive incentive effect in a third experiment that measures the time needed to generate a solution to problems that have multiple potential solutions and in a fourth experiment in which participants design insight problems. Overall, our findings suggest that any harmful effects of performance-based incentives are likely restricted to highly constrained settings. Data Availability: Data are available from the authors upon request. JEL Classifications: J33; M14; M41; M52.