Probability estimation in accounting: subjective numeracy matters

Abstract

PurposeThis study examined subjective numeracy and its relationship with accounting judgements on probability issues.Design/methodology/approachA subjective numeracy scale (SNS) questionnaire was distributed to 231 accounting students to measure self-evaluated numeracy. Modified Bayesian reasoning tasks were applied in an accounting-related probability estimation, manipulating presentation formats.FindingsThe study revealed a positive relationship between self-evaluated numeracy and performance in accounting probability estimation. The findings suggest that switching the format of probability expressions from percentages to frequencies can improve the performance of participants with low self-evaluated numeracy.Research limitations/implicationsAdding objective numeracy measurements could enhance results. Future numeracy research could add objective numeracy items and assess whether this influences participants' self-perceived numeracy. Based on this sample population of accounting students, the findings may not apply to large populations of accounting-information users.Practical implicationsInvestors' ability to exercise sound judgement depends on the accuracy of their probability estimations. Manipulating the format of probability expressions can improve probability estimation performance in investors with low self-evaluated numeracy.Originality/valueThis study identified a significant performance gap among participants in performing accounting probability estimations: those with high self-evaluated numeracy performed better than those with low self-evaluated numeracy. The authors also explored a method other than additional training to improve participants' performance on probability estimation tasks and discovered that frequency formats enhanced the performance of participants with low self-evaluated numeracy.