Business Decision Theory by Paul Jedamus; Robert FrameReview by: Russell M. BarefieldThe Accounting Review, Vol. 45, No. 3 (Jul., 1970), pp. 607-608Published by: American Accounting AssociationStable URL: http://www.jstor.org/stable/243872 .

Accessed: 12/06/2014 18:01

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.

.

American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to TheAccounting Review.

http://www.jstor.org

This content downloaded from 194.29.185.216 on Thu, 12 Jun 2014 18:01:45 PMAll use subject to JSTOR Terms and Conditions

Book Reviews 607

ous topics, including alternative views, ap- proaches, and modern evaluation and forecasting techniques. Unfortunately, the "in-depth" never unfolds. While his outline is reasonable, it tends only to highlight the "what" phase of the plan- ning process and does little if anything with the "whys" and "how." This approach makes it ques- tionable as to whether Irwin achieved his objec- tive of having it "serve as a working guide for managers in developing and putting into use an integrated system of business planning that will lead to increased profit" (p. viii).

I finished studying this book feeling that Irwin had treated me much as he had his chief execu- tive when he stated, "The chief executive first makes himself familiar with the subject of plan- ning by reading some of the texts listed in the bibliography and perhaps attending a seminar" (p. 26). While this approach is apparently by de- sign [the introduction indicates that "Theory has been deliberately kept to a minimum" (p. x)], I believe that it detracts considerably from the value and usefulness of the book. Unfortunately, I conclude that Irwin has missed an opportunity to materially contribute to the upgrading of plan- ning practices from the "rudimentary" state in which he found such practices at the beginning of his endeavor.

JACK W. COLEMAN Professor and Dean

California State College, Fullerton

PAUL JEDAMUS AND ROBERT FRAME, Business Decision Theory (New York: McGraw-Hill Book Company, 1969, pp. x, 290, $9.95). The authors state that their purpose "is to pro-

vide a self-contained treatment of statistical in- ference and decision theory at an elementary level" (p.v.). They attempt to make the treat- ment understandable to a student having only ele- mentary algebra by placing major emphasis on discrete cases and by substituting intuitive argu- ments for mathematical proofs.

A number of authors of statistics texts before Jedamus and Frame made like claims, namely, that their presentation would be easily compre- hended by students with only a background of al- gebra, but few have been as successful. Such ma- terial as the authors have chosen to cover is lu- cidly and effectively presented. The almost total lack of errors and an ample supply of problems consistent in degree of difficulty with the textual material are additional evidence that the book is very carefully written.

The first seven chapters, approximately half of the book, are devoted to a coverage of decision

theory. The material is organized so that a Baye- sian decision theory approach is presented as a logical extension of the classical material covered in immediately preceding sections.

After an introductory chapter, the authors at- tack directly a series of decision making problems under uncertainty without sampling. In each one of the cases, discrete priors and binomial sam- pling distributions are used. This second chapter, which is first rate exposition, makes a strong ar- gument for use of the expected value criterion and provides quite clear and precise explanations of pay-off tables, opportunity losses and the ex- pected value of perfect and of sample informa- tion. The relationship between conditional profits, conditional opportunity losses and information is made clear. Examples are well designed to show, for example, how the expected value of additional sample information may either increase or de- crease as samples are taken. However, only mini- mal coverage is devoted to the concept of utility.

Having motivated the student with this series of problems, the authors introduce probability con- cepts necessary to understand Bayes Rule and the binomial distribution. They then proceed to sta- tistical inference (hypothesis testing and the de- velopment of confidence intervals for means and proportions) and classical decision theory, build- ing on problems set up earlier. Chapters Six and Seven introduce the economics of decision rules and sampling and examine the desirability of de- ferring decisions in favor of seeking more informa- tion.

After a chapter on descriptive statistics, the last four chapters are devoted to the case of nor- mally distributed priors and normally distributed sampling distributions. The case of beta priors and binomial sampling distributions is not cov- ered. The presentation parallels that of the dis- crete section and is adequate but not quite up to the discrete portion, perhaps because of the in- ability of the authors to rely on any mathematics except simple algebra.

Several of the authors' better intuitive explana- tions are in the earlier classical chapters. For ex- ample, their explanation of the biased nature of the sample variance or of the problem of degrees of freedom make difficult subjects seem easy. (However, the discussion of confidence intervals for parameters of continuous distributions could probably be made clearer by some additional use of algebra.)

On the other hand, a person considering this text for adoption should be aware that the text does not discuss or only briefly mentions a con- siderable amount of classical subject matter. Omissions include (a) methods of parameter esti-

This content downloaded from 194.29.185.216 on Thu, 12 Jun 2014 18:01:45 PMAll use subject to JSTOR Terms and Conditions

608 The Accounting Review, July 1970

mation, such as the method of moments and the maximum likelihood technique; (b) distributions of sums of random variables; (c) several discrete probability distributions such as the Poisson dis- tribution; (d) Chebychev's inequality; and (e) goodness-of-fit tests and other applications of the Chi-square distribution. As a result, the instructor is restricted in his ability to choose or not to choose to cover some of this material.

In the reviewer's opinion, adoption of this book for a business statistics course should depend on the expected level of the students, on the amount of time the curriculum devotes to statistics and on the instructor's degree of preference for broader coverage in the classical area. The book would be best used at an undergraduate level with students who benefit most from an elementary treatment. The amount of time available to de- vote to statistics subject matter and the instruc- tor's attitude towards the importance of material excluded from coverage should also be taken into consideration.

RUSSELL M. BAREFIELD

Assistant Professor of Industrial Administration

Purdue University

ORACE JOHNSON, Editor, DR Scott Memorial Lectures (Columbia, Missouri: The Cura- tors of the University of Missouri, 1968, pp. vi, 143, $3.00 paper). This publication is an outgrowth of the "Ac-

countants in Residence" program at the Univer- sity of Missouri during the fall semester of 1967. The title is a tribute to Professor DR Scott who served the University of Missouri for forty years until his death in 1954. The first article, "DR Scott, Accounting Teacher Extraordinary," is an admiring tribute to DR Scott by Professor Ralph Skelly, who was in Scott's "Advanced Accounting Theory" the last time he taught it. It expresses well Scott's beliefs that accounting must adapt and contribute to the existing cultural, economic, and social patterns.

A second introductory article, "Accountants in Residence" by Professor Wilbur Haseman, is a condensation of an article in "The Teachers' Clinic," THE ACCOUNTING REVIEW, July, 1968. This explains the objectives and organization of the program. The stated objectives are: "(1) to locate, define, and analyze new problems facing the accounting profession before they become fully recognized in accounting literature, and (2) to provide a vehicle for developing student ana- lytical, research, and writing abilities." There are

four phases of the program: (1) A formal presen- tation by a qualified accounting practitioner; (2) informal discussion of the presentation by the practitioner, students, and faculty; (3) written re- action of the student; and (4) a research project by each student.

The majority of the book is devoted to six for- mal presentations, a summary of the discussion prepared from tapes by two or three students, and the reaction of one student.

"The Need for Clearly Defined Accounting Principles" by Roy A. Wilhelmsen, Partner, Ar- thur Andersen & Co., is a well-organized presenta- tion of the principles' dilemma, with well-selected examples of several problems. As expected, it has the standard Arthur Andersen & Co. emphasis. The discussion summary covers the authority of the APB (Accounting Principles Board), the pres- sures brought upon the APB while it is preparing an opinion, and the now well known case of the SEC decision-after the APB did not take a posi- tion-to require current liability classification of deferred taxes on installment sales. The reaction of Richard Fuller is an attack on the fairness pos- tulate as put forth by Leonard Spacek of Arthur Andersen & Co. and restated by WVilhelmsen in his lecture. In a short well-reasoned reaction, Fuller concludes, "I believe fairness is a main core uniting all accounting postulates to form fair accounting principles."

"The Explosion of an Information System" by Maurice L. McGill, Financial Vice President and Treasurer, Iowa Beef Packers, Inc., is primarily devoted to a discussion of the rapid growth of McGill's company. There is some discussion of the major problems of an information system and the information which should be provided by the system to all segments of the business. The dis- cussion summary is primarily concerned with computer applications and the development and operation of the company. Terry Meier's reaction is one of the most interesting in the book. Evi- dently in the discussion, McGill stated that straight-line depreciation was adopted to give a higher reported net income, which resulted in in- creased market value of the stock. This is not stated in the discussion summary presented in the book, although there was continual emphasis on high net income in the lecture. Meier develops the idea that the members of management, which have stock options, may adopt accounting meth- ods which will cause bias in their favor, and per- haps be detrimental to other users of the financial statement.

"Measuring Division Results" by Jack Mueller, Assistant Controller, Monsanto Co., is an evalua-

This content downloaded from 194.29.185.216 on Thu, 12 Jun 2014 18:01:45 PMAll use subject to JSTOR Terms and Conditions