Invisible Calculations: How to leverage neuroscience and behavioural economics in accounting and decision-making
The power of applying behavioural economics research to solving real-life problems has proven its worth for society, politics, and finance since the late 1970s. In this Executive MBA webinar, Professor Francesco Venuti explains how you can leverage the latest research to generate positive outcomes in accounting and decision-making.
If someone were to ask you to describe your feelings about financial accounting, “passion” and “intrigue” might not be the first words that come to mind. However, when taught by Professor Francesco Venuti, even the most artistic souls could be convinced that the subject is fascinating and inspiring. In his webinar "Invisible Calculations: How to leverage neuroscience and behavioural economics in accounting and decision-making", Professor Venuti gives us a glimpse into how behavioural science and neuroscience research could empower decision-makers.
Why Behavioural Accounting Matters
Since the late 1970s, the power of applying behavioural economics research to solving real-life problems has proven its worth for society, politics, and finance. As the field evolves, so do its applications. Behavioural accounting, for example, takes what is one of the oldest recorded human activities and uses the insights of behavioural science to better understand, explain, predict and correct for the consequences of human behaviour in accounting.
Professor Venuti reminds us that the most basic definition of accounting is “to count” and argues that at its heart, the reason we are compelled “to count” is to make sound decisions. The process behind how we make decisions–input, processing and output–is important, but the way we frame and present this information, i.e. the context, might be just as, if not more important. Take, for example, an optical illusion that tricks the viewer into thinking two squares on a Rubik's cube are different when they are, in fact, the same colour. Once the illusion is revealed, we become empirically aware of this sameness, yet we continue to see the two squares as different colours. In this case, the difficulty in correcting cognitive bias reveals the fact that we see with our brain, not with our eyes.
An Essential Skill For Managers
Similar to the Rubiks cube illusion, how we process financial information will depend on context or framing and have real-world implications. A person presented with an investment product framed within a volatile market will have a very different risk profile from a person presented with the same product when the potential returns are presented optimistically. As this scenario shows, neutral decisions are a near impossibility because the information shared will never be devoid of context nor free from the influence of prior decisions.
Sound decision-making tactics are essential for leaders, yet neuroscientific studies have exposed innumerable examples–herding, anchoring, and self-herding–of how our brains can betray rational decision-making. Certain models, such as simulation models, can help in attenuating certain behaviours; however, knowledge of their existence remains one of the more effective methods/tactics to correct for. Awareness of these potential pitfalls has become an essential skill for managers and executives to acquire to counter negative outcomes that come from hidden cognitive bias, which is why the Executive MBA at ESCP Business School has integrated elective courses that teach the latest research and, most importantly, how to use this research to one's advantage.
Executive MBA Elective Courses
For a full list of Executive MBA Elective Courses, including "Behavioural and experimental economics for business and managers" and "Behavioural corporate finance and investors psychology", download the Brochure.
Associate Dean, EMBA and GMP
ESCP Business School
Professor Francesco Venuti is the newly appointed Associate Dean of the Executive MBA and General Management Programmes. As a professor of accounting, his major fields of research include financial accounting and reporting (with a specific focus on Insurance companies), nonfinancial disclosure, food & beverage and behavioural accounting. He is a member of the Accounting for Banking and Insurance Research Lab (ABIREL) at the University of Turin. Professor Venuti is the 2021 recipient of ESCP’s Teaching Award.