Martin Glaum

Lexicographic preferences for predictive modeling of human decision making: A new machine learning method with an application in accounting

Lexicographic preferences on a set of attributes provide a cognitively plausible structure for modeling the behavior of human decision makers. Therefore, the induction of corresponding models from revealed preferences or observed decisions constitutes an interesting problem from a machine learning point of view. In this paper, we introduce a learning algorithm for inducing generalized lexicographic preference models from a given set of training data, which consists of pairwise comparisons between objects. Our approach generalizes simple lexicographic orders in the sense of allowing the model to consider several attributes simultaneously (instead of looking at them one by one), thereby significantly increasing the expressiveness of the model class. In order to evaluate our method, we present a case study of a highly complex real-world problem, namely the choice of the recognition method for actuarial gains and losses from occupational pension schemes. Using a unique sample of European companies, this problem is well suited for demonstrating the effectiveness of our lexicographic ranker. Furthermore, we conduct a series of experiments on benchmark data from the machine learning domain.

Discretionary accounting choices: the case of IAS 19 pension accounting

Based on a sample of 3207 firm-year observations for the years 2005–2013, we investigate how stock-listed companies in France, Germany and the UK use two discretionary choices in their accounting for defined benefit pension plans under International Accounting Standard (IAS) 19 Employee Benefits. We first analyse companies’ decision whether to voluntarily early adopt the equity method of accounting for actuarial gains and losses. Second, we analyse companies’ choice to present pension interest cost and expected return on plan assets, or, in 2013, net pension interest cost, in operating or financial income. Our findings provide evidence that companies’ decisions to early adopt the equity method in 2005, the first year this accounting choice was available, were motivated by short-term effects on equity. Our analyses also indicate that the choice regarding where to present interest cost and expected return on plan assets in the income statement is associated with the resulting effect on Earnings before Interest and Tax. Finally, we document country-specific differences in the use of the discretion provided under IAS 19, suggesting that discretionary pension accounting choices may impede comparability.