Bounded Rationality:”The three error types in statistical inference: Heuristics in scientific research”, Sanjay Kallapur,Professor of Accounting at Indian School of Business

dsc_0452Speaker: Sanjay Kallapur is Professor of Accounting at the Indian School of Business (ISB). He was a tenured Associate Professor at the Krannert School of Management, Purdue University, prior to joining ISB. He conducts empirical research in financial and managerial accounting, auditing, and corporate governance, and recently on the economics of the auditing profession. He has published in top accounting and finance journals such as The Accounting Review, Contemporary Accounting Research, Journal of Accounting and Economics, and Journal of Accounting Research, and more. From 2008 to 2011 he was an Editor of The Accounting Review. Professor Kallapur obtained B.Com and MBA degrees from the University of Mumbai, and a Ph.D. in Business Economics from Harvard University.

This was an interesting session by Mr. Sanjay Kallapur wherein he explained how he got interested in statistical inference. He explained how p-values, widely applied in statistics, has had its share of limitations & how that has led to irreproducible results & misunderstanding of values. He further explained certain concepts with everyday examples. The highlight of the discussion was about Type-III error. Usually, it is Type-I & Type-II error that is given the most importance but Type-III error ie which involves prior probability & asking the right questions is important too. This error cannot be estimated numerically & hence, researchers assess this qualitatively. He also explained observations by Bernile, Bhagwat & Rau and Bernard & Thomas. He further mentioned how Heuristics can be used as a solution in certain cases of Type-III error issue. It was also discussed how this error can be reduced. Benford’s Law (which explains exponential growth), Benchmark beating & application & refining of constructs was explained. In the final part of the discussion, he explained how research involves judgement & unstable assumptions. Thus, he recommended how it is important to be explicit about our assumptions or judgments in the research. The problems generally arise when researchers want to claim that they found an objective truth. The session was concluded by a Q&A session with the participants.

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