Heuristic of Representativeness and Anchoring-Adjustment in Budgeting

Abstract

This study aims to examine and analyze the inaccuracy in determining the Local Revenue (PAD) budget estimation in the public sector for the upcoming period. When the budget compilers faced complex problems in arrangement the estimates of PAD, they will perform a decisions unit’s budget estimates quickly and efficiently, just depend on the analyze information of PAD past and present. The method of analyzing this experimental research uses Two Way Analysis of Variance (ANOVA), one of the multivariate analysis techniques which serve to distinguish the average of the two groups of data by comparing the variance. The results of this study indicate that representativeness heuristic approach affects the bias that occurs or inaccuracy of PAD budget estimates, while anchoring-adjustment heuristic does not affect the bias or inaccuracy of the PAD budget estimates. Based on this, the budget compilers of PAD used a representativeness heuristic approach (existence of overreaction behavior) in predicting the amount of the PAD budget for the upcoming period. The heuristic approach is useful in determining the predictions of PAD budget in the public sector if the budget compilers have the knowledge competencies and adequate experiences in order to reduce the heuristic bias that occurs.