ABSTRACT Despite the importance placed on professional skepticism by the accounting profession and regulators, the failure of auditors to exercise an appropriate level of skepticism continues to be a global issue. We experimentally test a potential barrier to skepticism. We find that outcome knowledge biases supervisors' evaluations of skeptical behavior. Holding a staff member's skeptical judgments and acts constant, superiors on the engagement team evaluate the staff's skeptical behavior based on whether the staff's investigation of an issue ultimately identifies a misstatement. Our evidence suggests that evaluators penalize auditors who employ an appropriate level of skepticism, but do not identify a misstatement. Although consultation with their superiors while exercising skepticism improved staff auditors' performance evaluations, consultation did not effectively mitigate the outcome effect on their evaluations. Last, we observe that auditors in the field anticipate that their superiors will be influenced by outcome knowledge when they evaluate their skeptical behavior. Collectively, our results depict an evaluation system that may inadvertently discourage skepticism among auditors in the field. Data Availability: Contact the authors.

ABSTRACT We examine the role of borrower concerns about future credit availability in mitigating the effects of adverse selection and income misrepresentation in the mortgage market. We show that the majority of additional risk associated with “low‐doc” mortgages originated prior to the Great Recession was due to adverse selection on the part of borrowers who could verify income but chose not to. We provide novel evidence that these borrowers were more likely to inflate or exaggerate their income. Our analysis suggests that recent regulatory changes that have essentially eliminated the low‐doc loan product would result in credit rationing against self‐employed borrowers.

ABSTRACT During 2005 to 2007, the SEC ordered a pilot program in which one‐third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short‐sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre‐experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, curbs earnings management, helps detect fraud, and improves price efficiency.

Economics is characterized by well-developed predictive theories of human behavior. A wide variety of empirical tests of models based on those theories have been developed, as well as extensive and reliable data bases to test the theories. Thus, one can experiment with and simulate economic behavior. For these reasons, the conventional lecture-discussion format may be the least effective way to teach economics. Rather, the most effective teaching method may be as a laboratory science. We report here on two efforts to adapt economic instruction to a laboratory format. The purpose of adapting the lecture-laboratory format to economics is to permit a more active learning environment in which students can be meaningfully engaged by the material, with other students, and with the instructor. We report on two recent efforts to convert economics to a true, experimental, laboratory social science. The first, beginning in 1988, is a demonstration project conducted at Denison University for majors in economics. The second, beginning in 1993, is a true experiment conducted at Washington State University for all students taking introductory microand macroeconomics. I. The Demonstration Project for Economics Majors at Denison University

We exploit a unique data set, combining rich experimental data with high-quality administrative data, to study dropout from the college track in Norway, and why boys are more likely to drop out. The paper provides three main findings. First, we show that family background and personal characteristics contribute to explain dropout. Second, we show that the gender difference in dropout rates appears both when the adolescents select into the college track and after they have started. Third, we show that different processes guide the choices of the boys and the girls of whether to drop out from the college track.