Does Creativity Affect Fraud Assessment and judgment? An Experimental Analysis

Abstract

This study examines how creative potential and loss aversion influence fraud risk assessments under uncertainty and outcome feedback. Because audit evidence is persuasive rather than conclusive, fraud detection inherently involves ambiguity, judgment, and professional skepticism. We argue that individual differences in creative potential may influence how auditors interpret uncertain information and maintain alternative fraud hypotheses, while loss aversion may shape fraud judgments through competing concerns about audit failure and false fraud allegations. Using a controlled experiment that systematically varies outcome probabilities in a Rock-Paper-Scissors task, we compare the judgments of 61 experienced auditors with those of more than 200 non-professional investors. The results show that realized outcomes are the primary determinant of fraud risk assessments, indicating that judgments are mainly evidence-driven. Among auditors, higher creative potential is associated with higher fraud risk assessments, whereas no comparable relationship is observed among non-professional investors. However, we find no evidence that creative potential moderates the integration of outcome information into fraud judgments. Loss aversion exhibits statistically significant but comparatively small effects across the analyses. Overall, the findings suggest that creativity functions as an individual-level cognitive resource that supports the interpretation of ambiguous information, while observable evidence ultimately dominates fraud risk judgments as more diagnostic information becomes available.

    JEL Classification: M40, M42, M48.