Effect of Compensation Plans on Heuristics in Cost Variance Investigations

The article discusses experimental research concerning the effect of compensation plans on managers' selection of problem-solving strategies. The study, which is designed to evaluate two compensation plans, choices such as decision models and heuristics or rules of thumb from previous experiences, behavior in uncertain environments, and cost variance investigations, tests employees' decision-making ability in a cost control setting. Bias in heuristics, conditioning by reward systems, Markov processes, t-tests, and implications of the study for understanding human information processing, the influence of accounting systems on behavior, and deviations from optimal choice models are mentioned.