When Is a Risky Asset “Urgently Needed”?

Risk free asset demand in the classic portfolio problem is shown to decrease with income if and only if the consumer's uncertainty preferences over assets satisfy the preference condition that the risk free asset is more readily substituted for the risky asset as the quantity of the latter increases. In this case, the risky asset is said to be “urgently needed” following the terminology of the classic certainty analysis of Johnson (1913). The urgently needed property tends to be more readily satisfied in uncertainty versus certainty settings. Asset pricing implications of this property are provided. (JEL D11, D53, D81, G11, G12)

The Persuasiveness of Client Preferences: An Investigation of the Impact of Preference Timing and Client Credibility

Explicitly stated client preferences are intended to persuade the auditor to accept a preferred outcome. This experimental study investigates two determinants of a preference's persuasiveness—timing and client credibility. Sixty-four experienced auditors completed two hypothetical cases, one involving disclosure of a contingent liability and the other involving the collectibility of a customer account. The findings suggest that audit judgments regarding contingent liability disclosure may be biased toward a client's preference if the preference is received prior to evidence evaluation (i.e., an early preference) but not if the preference is received at the end of the evidence evaluation process (i.e., a late preference). No such bias, however, is present for the collectibility judgment. Results also indicate that auditors who receive an early preference ask to examine more additional audit evidence than those who receive a late preference, although whether they seek additional evidence to confirm or disconfirm the client's preference remains unclear. Finally, no support is found for the ordinal interaction hypothesizing that only a highly credible client in the early preference condition will differentially influence contingent liability disclosure and accounts receivable collectibility judgments.