Professional trait scepticism and behavioural bias in decision-making by financial professionals

Abstract

Professional scepticism has received attention from various stakeholders, such as policy-makers, regulators, practitioners, and the public, in the last few years. This interest was driven by various negative events which have been attributed to financial professionals’ failure to apply professional scepticism. Such incidents have damaged the reputation of the finance profession. This study investigates the relationship between the trait of professional scepticism and decision-making biases. It further examines how possible determinants, such as gender, age, experience, and personality traits, could play a role in financial professionals’ susceptibility to decision-making biases.

The study adopted an empirical research design, using a quantitative data analysis approach. Data were collected primarily through questionnaires distributed to financial professionals accredited by the International Auditing and Assurance Board (IAASB) or the Association of Chartered Certified Accountants (ACCA). Advanced statistical techniques, including structural equation modelling (SEM), were used to explore the relationship between the trait of professional scepticism and decision-making biases.

The findings show the presence to a significant extent among financial professionals of confirmation bias, misconceptions of regression to the mean bias, conjunctive event bias, overconfidence bias, and affect bias. There was no significant relationship between the trait of professional scepticism and these biases. However, specific constructs within the trait of professional scepticism (such as a questioning mind, suspension of judgement, the search for knowledge, and self-determining) displayed significant positive (and in some instances negative) relationships with these biases. The results reveal that determinants such as gender, experience, and personality traits (such as extraversion and neuroticism) lead to both higher and lower susceptibility to certain decision-making biases among financial professionals.

The present study contributes to the literature by providing evidence of the behavioural manifestation of the relationship between the trait of professional scepticism constructs and decision-making biases. These findings shed light on the effectiveness of some constructs of the trait of professional scepticism in making financial professionals less susceptible to decision-making biases. Conversely, instances were also identified where certain constructs could potentially aggravate decision-making biases. The findings offer valuable insights for policy-makers, regulators, and professional bodies such as the IAASB and the ACCA, emphasising the need for a comprehensive understanding of professional scepticism and its possible implications for decision-makers in the finance profession.