What is a Theory?

What is a Theory?

By Kelly Stallard 

kelly dot stallard at bigpond dot com

A theory can be defined as:

‘A coherent set of hypothetical conceptual and pragmatic principles forming the general framework of reference for a field of inquiry’- Hendriksen, 1970 p.1

In other words, a theory is much more than a 'hunch' or a 'gut feeling'. It is based on logical reasoning and used to help make sense of real world phenomena, providing explanations as to why some things work the way they do (Deegan, 2009 p.4).

Logic is the valid reasoning behind the theory, to show that it makes sense.  A theory also requires proof and evidence, but we must be careful not to confuse proof with evidence. Evidence is something that you show or present to support your argument, whereas proof is that one ‘thing’, be it evidence, an argument, or something else that convinces you the theory is the truth.

The following elements must be present in order to construct a theory: It must be structured, form a framework which leads to other things, be a conceptual model (show relationships) explaining what the 'real world' is and ultimately help us make decisions.

It is also beneficial, but not necessary, if the theory is useful (helpful in the real world), prescriptive (whether good or bad), able to criticise current methods, fits with existing ideas, is true in all circumstances, is exact and realistic.

Critical Thinking and Theory

It is important when evaluating a theory to think carefully about what has been presented to you and not just accept it as truth. In other words, are the supporting arguments logical, do you agree with the assumptions of the theory and is there acceptable evidence to support the theory. This is where critical thinking comes into play, enabling people to think ‘outside the box’ and to look at things in different ways. Critical thinking is governed by things such as clarity, precision, accuracy, relevance and consistency (Bassham et al, 2009 p.2)
Clarity is required to make sure we understand what we are being told both through language and through thoughts or ideas. Critical thinkers also value precision, looking for precise (or exact) answers to precise questions. Accuracy and relevance are also important as decisions that are based on bad information will lead to bad decisions. Staying focused on what is relevant will help ensure accuracy (Bassham et al, 2013 p.2).

Finally, there is a need for consistency in critical thinking. If a person holds inconsistent beliefs, how can they both be true? Inconsistencies can be logical – saying or believing inconsistent things or; practical - saying one thing yet doing another. Critical thinkers consider all these aspects when assessing a theory, in order to avoid fallacies.

Fallacies are misleading arguments or theories that are seductive and easy to believe. The two main types of fallacies to be aware of are fallacies of relevance and fallacies of evidence. Fallacies of relevance are statements whose purpose is to draw attention away from the subject matter. Fallacies of evidence relate to arguments that do not provide the required factual evidence for their conclusions (Bassham et al, 2013 p.4).

Perspectives of Accounting

There are theories can be divided into roughly two categories; Positive and Normative. Although there are additional types, these are the most common. Both are constructed in different ways and have their own objectives so users have to be careful not judge a normative theory as being "bad" if it is approached from a positive perspective.

Positive theories describe and predict. They aim to explain how things work by using a more scientific approach, so as to understand ‘why’. These theories tell us what 'is' and are based on facts.
Normative theories are prescriptive and tell us what 'should' be, more like providing instructions. These theories tend to start with morals and are based on judgements of what is good and bad or right and wrong.
Theories are constructed from a number of arguments. Each argument can then be proved (or disproved) by using either inductive or deductive reasoning.

Image by Kelly Stallard

Inductive reasoning is generally associated with positive theories that have been developed using empirical evidence - evidence based on past observations. Inductive reasoning begins with specific observations and uses these to detect patterns thus enabling a hypothesis to be formed. This hypothesis offers explanations as to why things are done in a certain way and this in turn leads to the creation of a general theory.



Deductive reasoning however often starts with a normative idea. It begins with a tentative theory that is used to form a hypothesis, explaining what should be done. These hypotheses provide evidence through testing and observations, leading to a confirmed theory. 

Image by Kelly Stallard

Deductive reasoning is often considered the stronger of the two methods. This is because from each argument, the following inference must be true to confirm the theory, whereas inductive reasoning only implies the truth. Reasoning, Logic and Proof are all required when evaluating the strength of a theory.

Parts of a Theory

A theory can essentially be broken down into four main parts: Evidence, Inference (or conclusion), Assumptions and Arguments.

Evidence can be facts, other theories, observations, and so on that you present to support your argument.
Inference / Conclusions are the resulting explanations based on an argument and supported by evidence.
Assumptions can be explicit or implicit. Explicit assumptions are clearly and precisely stated, leaving no room for implication. The assumption may include arguments based on a persons unconscious thoughts, which could affect the conclusion. For example, this is what I believe so this is my argument supporting that belief.
Implicit assumptions include the underlying agreements or statements made in the development of an argument, which are not explicitly voiced nor necessarily understood. That is, they are implied but not directly stated.

Arguments are the fragments (pieces) that build to the conclusion. Arguments are ALWAYS statements. To test whether some thing is a statement, put "it is true that" at the beginning of the sentence. If it still makes sense, then it is a statement.  A simple example of an argument could be:

1. All people are selfish (Explicit assumption)
2. Managers are paid bonuses on profits made (Argument)
3. Therefore old managers will not spend money on research and development (Conclusion)

Another way of understanding how a theory is constructed, is by looking at it from a different perspective. Imagine building a house and picture each part of the theory as one aspect of the build. For example, we start with assumptions – the foundation on which we want to build. Next, the theory itself forms the solid structure on which to base our arguments. The arguments and evidence are the parts and materials used to build on the structure. Finally, the finished product of a house is the conclusion to the theory – what it was designed to do. The below link shows this process in pictures as a visual aid to help understand how the process all fits together.

References

Bassham, G Irwin, W Nardone, H Wallace, JM 2013, Critical Thinking: A student's Introduction, 5th Edition, McGraw-Hill, New YorkDeegan, C 2009, Financial Accounting Theory, 3rd Edition, McGraw-HIll Australia Pty Ltd, NSW

Hendriksen, E 1970, Accounting Theory, Illinois, Richard D Irwin

What makes up an argument?

What is an Argument? 

By Kellie Rosenfield
kellie -dot- rosenfield -at- gmail  -dot- com

Pronounced [ahr-gyuh-muhnt] as per Dictionary.com noun: 
For the purpose of this Wiki page, the term argument does not mean ‘fight’ or ‘dispute’ but is the name given to reasoning in order to establish a conclusion.

 An argument is where you try to convince someone of something by giving reasons as evidence in the hope that they will accept the conclusion you are trying to make.  The construction of an argument has to provide reasoning and rational thought.  Arguments are the fragments (or statements) used to build up to your conclusion. An easy way to check if something is a statement you insert it into the following..
"It is true that...."

For example. A mother yells to her child, "Son! Close the door! It is cold in here!"

To break down the dialogue, we can see three distinct parts.  When trying to ascertain which one is the statement, we will insert each into the text "It is true that..." and the one that remains logical is deemed the statement.

1. It is true that Son. - This makes no sense whatsoever. This is NOT a statement.
2. It is true that close the door! - This also makes no sense. THis is NOT a statement.
3. It is true that it is cold in here. - This DOES make sense and therefore it is deemed the statement. It is

logical and brings reasoning to the original statement made by the mother. It is deemed a valid argument.
A solid argument needs a good foundation, much like building a house.  If the foundation is not solid, whatever we choose to build on it, will become weakened as we progress.  We can consider the foundation our premise. This is an idea that we consider to be true and on which we will use to then build our argument.
 What is NOT an argument? This is where the statement is void of logic and reasoning. Please see Fallacies for further information.

Reasoning

We can build arguments through two different methods. These are through Inductive reasoning or Deductive reasoning.

Inductive Reasoning

Inductive reasoning begins with data or an observation (hard facts). From this data, we look to see patterns forming (this is usually based on the average over time). This can strengthen our belief or confidence in the data or the observation.  From these patterns, we can provide a tentative explanation as to why this is occurring (in line with our argument). Once proven, this becomes an accepted theory. When using inductive reasoning, it is only necessary that each step implies the truth and it is not necessary for it to be the absolute truth. Inductive reasoning aims to provide reasons supporting the conclusion's probable truth.  In inductive reasoning, we begin with an observation or data. From this information, we look to see any patterns emerging in the data. We then hypothesize why these patterns occur and from this we draw out theory (conclusion).  In each step along this process, it implies the truth but it is NOT absolute.

Deductive Reasoning

Deductive reasoning begins with a concept or idea.  From this idea we can build a hypothesis. A hypothesis is a tentative assumption in order to draw out and test your idea’s logic or empirical consequences (which means that it can be proven).  The evidence could be logical arguments. Evidence is considered the one piece of information that makes you believe in the idea/concept/assumption. This now becomes a confirmed solid theory. For a theory to be confirmed under deductive reasoning, each inference and argument MUST be true.

Examples

Example 1 

 This general example was drawn from Deegan (2009)

1. All surfers over the age of 35 ride longboards (premise)
2. Jack is a surfer over the age of 35 (evidence)
3. Jack therefore rides a longboard (conclusion)

Acceptance of the above premise means we are more likely to accept the conclusion due to its logical deduction.

Example 2 - Accounting

Assumption: The key objective of financial accounting is to provide useful information to decision makers.
Decision Usefulness Theory

1. If investors had better information, they could make better decisions
2. Historical cost is a bad method, illogical and probably misleading
3. Therefore, we SHOULD fix this problem (historical cost) and replace with information that WOULD be more useful.

Let’s examine each line of the above argument.
1.       If investors had better information, they could make better decisions.
Is this true? Well, it’s not not true.  Consider this example. If you have bricks, mortar mixed to the perfect consistency and expert tools and you’re asked to build a house. Will you be expected to build a brick house to an acceptable standard? Probably not. What you’re lacking is not the best materials and best tools; it is the ability to successfully construct. This is as true for wall construction as it is for argument construction. Just because people have the correct information does not mean they will always make the right decisions.
 2.       Historical cost is a bad method, illogical and probably misleading.
Historical cost method is bad. It IS illogical and it is definitely misleading.
This argument is true.
 3.       Therefore, we SHOULD fix this problem (historical cost) and replace with information that WOULD be more useful.
This is a normative statement as it is stating what SHOULD happen. This raises another question. What or how much information is considered enough? This is simple. There only needs to be sufficient information for it to be useful and this will vary for each individual user of the information.

Where do Arguments fit into Theory?

Below are the elements that go into creating a theory with a brief explanation of each.
For consistency, the example of building a house will be used to keep things in context.

Assumptions (Foundation)

This is the foundation on which you build everything else.
Assumptions can fall into two categories.

1. Explicit – where your assumption about something is very clear and there is no doubt about its meaning.
2. Implicit – where your assumption is not very clear or possibly not understood. It is defined as being “unexpressed”. This is different from being unstated as it infers a level of consciousness.

House example – The house’s foundation (the concrete slab)

Arguments (Parts)

Parts which are used to construct the whole structure (these are statements made using evidence)

House example – Walls, roof, etc.

Evidence (Materials)

Materials used in the parts (Arguments) – The stronger the evidence, the higher quality the material is = Better parts and thus creates a stronger structure.
Evidence is something you or present to support your argument. These can be facts, other theories or abservations (data).

House example – bricks, wood, glass, etc

Theory (Structure)

The structure in its totality. It gives meaning to your arguments, the evidence and your underlying assumption.

House example – The house

Conclusion (Function)

Function = what you plan on doing with the structure (theory)?

This raises two very important points.

1. The conclusion indicates how people behave
2. Now you know:  what do you do with the information?

House example – What we plan on doing with the house upon completion.

 Reference List

Allen, Matthew (2004) Smart Thinking: Skills for Critical Understanding and Writing, 2nd Edition, Oxford University Press, South Melbourne, Victoria, Australia.

Deegan, Craig 2009, Financial Accounting Theory, Third Edition, McGraw-Hill Australia Pty Ltd, North Rude, NSW, Australia

Dictionary.com - accessed 27th April 2014
http://dictionary.reference.com/browse/argument?s=t

Leyden, D (2011) Critical thinking in economics, Kono Publishing and Media Group, Charlotte, North Carolina, USA

 Mohan, T McGregor, H Saunders, S Archee, R (2008) Communicating as Professionals, 2nd Edition, Cengage Learning Australia, South Melbourne, Victori, Australia, Chapter 2.

Positive and Normative theories, Inductive and deductive methods. What's the difference?

Let's try and separate the concepts of normative, positive, induction and deduction. First off, we need a distinction between the types of theories and the methods of proof that we use to test their validity. 

Here's an analogy:

Proof by INDUCTION and POSITIVE theories are kind of like ROAD and CAR

Proof by DEDUCTION and NORMATIVE theories are kind of like RUNWAY and AIRCRAFT. 

Roads and runways kind of look the same, they are black, hard, made of the same stuff, but they have very different designs and do very different things.

Cars and planes both get you places, but again, have very different uses. Which one is better? Well that depends on what you are doing. I can't just take a plane to Chadstone shopping center. Really a a car is only the best tool for this job. 

Naturally a car matches the road, and runways are used by planes. But they can swap if they have to. Cars drive on runways all the time. There are MANY cases of planes landing on highways in emergency because it's better than crashing. 

This what I mean by theories and their methods of proof crossing over. You simply use whatever theory is best able to do the job. 

For illustration, have a look at this image below. Cars, roads, planes, and runways all in one image. It's one of the few places where the country's main highway also crosses their international airport. You'd make sure you don't mix up the differences between road and runways here otherwise there could be a very messy outcome. So too it is with your theories. Mixing your meaning often means your ideas will crash. 

And this is 100% real. No Photoshop. 

View Larger Map

The point is, don't confuse the two. If I want to fly to Gibraltar, I wouldn't say "I'm going to take the runway to Gibraltar". Likewise, I wouldn't say my idea is deductive. Instead you would say "I have a normative idea and I will show you how it works using deductive methods".

I hope this makes the idea clearer for all! 

-Tetracarbon out

Follow me on twitter @tetracarbon or subscribe to my YouTube Channel. 

The problems with Historical Cost Accoutning

The parable of theory: Teaching theory with play dough.

Can you teach critical thinking with play dough?

Can you teach critical thinking with play dough? YES!  If you can teach using analogies, you can use play dough to make the idea clear.

Here are some tips:

1. Lesson plan. Make sure you have a "story" and you stick to it as you "construct" the idea. While you are talking you need to construct the play dough to illustrate.

2. Labels on skewers. Make these the learning objectives or key things you want them to remember.

3. Hand outs with blanks. If they don't write it down, the students will think "geeez that's neat" and forget what you told them. Give them a 1 page hand out with blanks for each of the skewer/labels you wanted them to remembers.

4. Don't tell them what you are going to do. Do tell the students the learning objectives are the start of the lesson, but don't tell them WHY you have play dough in the lecture theatre. This builds excitement and engagement.

5. Involve students. You can't see it in the video but the students were all rolling out the play dough and while I was setting up. They ask lots of questions at this stage, make silly jokes, but again (tip 4) don't tell them what is about to happen.

6. Cookie cutters help speed the process of making the basic shapes for the ideas you want. You can be quite declarative about it - eg: when explaining consolidation and corporate grouping I say, "OK guys, every square shape is a company, and every triangle is a family trust". People get it.  

7. Invite the students to criticise your model. Scary stuff! Ask them to tell you why this is "stupid" or what is the limitations of the analogy. Ask them how it could be explained differently.

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Example: 

In this video I try to explain the aspects of logical argument using an analogy of a model house built out of play dough. Each part is analogous to each part of the model house.

Comments and criticisms are welcome.

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Self Criticism:

The Hattie (2009) found that self-reporting of grades (ie: critical reflection) was one of the most effective learning tools. So in the interests of good learning and transparency in teaching, here is everything that I don't like about my own work.


Terminology: "parable", really?
I realise that it's probably more of an analogy than a "parable", but the idea is sufficiently clear.

Terminology: Can a parable be "logical"? 

Well, it can be logical in that it makes sense, but it is far from deductive proof. 

Hippocratic: Analogies are weak evidence, yet you teach with a weak tool. 

Yes. And I made that clear up front. And I am trading "strong" tools for "engaging" teaching tools. This opens me to criticism that I engage in edutainment. I have bloged on why edutainment mightn't be such a bad idea, although when I watch have to suffer Channel 10 News or Today Tonight there's certainly a problem with "infotainment". The problem is that it's the same problem.  

Technical production: White balance is wrong.

I know. 

Technical production:  Lighting is awful.

I know. It's a shoddy lecture theatre, not a sound stage. 

Technical production: focus is all wrong

I'm using a DSLR camera on a tripod. DSLRs are bad for video without a professional focus puller operator. If you leave the camera on autofocus you get these awful zzzzzit, zzzzit noises from the lens constantly adjusting, and these interfere with the audio. I have split the audio from the film in the past, but it's a hassle. I want a dedicated video camera, but that's money I personally don't have. 

-Tetracarbon out

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Even little kids get subjected to my
accounting-theory-and-play-dough-class

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References: 

Hattie, J. A. C. (2009). Visible learning: A synthesis of 800+ meta-analyses on achievement.

How to improve your LMS: Formative online checkpoint test to drive engagement

Practical eLearning Tool Pedagogy

These days it seem to be all about iPads. I am not convinced that the shiny stuff makes for good learning. You simply just don't need the best toy to learn the most. 

This is  an example guide of how use simple eLearning tools. It is deliberately not revolutionary; just very effective. 



Problems:

• Student boredom –Subject is Advanced Accounting Theory after all
• Poor textbook purchase rate, reading previously almost non-existent
• Poor sustained student effort – tendency to cram
• Student tendency for “collaborative rote” – commonly known as “cheating”

Goals:

• Increase student engagement, earlier
• Create a “natural” learning experience
• Provide early warning for students-at-risk
• Follow sustainable assessment concepts (Boud, 2000)
  • Spread formative assessment across the semester
  • Flexibly allow for student sickness, interruptions, etc
  • Not to increase teacher marking loads

Strategy & Implementation: formative assessment.

• Students are set a weekly quiz (checkpoint test), online via the LMS
• Each checkpoint test is between 10-14 MCQs
• The average of all online quizzes constitutes 10% of final grade
• Students can do this whenever they want, but the longer they leave it, pressure mounts
• Each checkpoint test unlocks the next topic:
  • Student must do the quiz for week 1 to get to week 2 learning material. 
  • Notes, handouts, powerpoint slides, suggested tutorial solutions are all hidden until student engages online
  • Prevents cramming
  • Encourages studying and reading before progressing
• Questions are grouped by learning objectives to ensure complete subject coverage
• Only one attempt, time limited to 1 hour
  • Enough time to consider each response
  • Most students take between 20 to 30 minutes to complete each checkpoint test
• Both question order and multiple choice answer order is randomised
• Questions are difficult and can be VERY specific about the textbook
• Students receive an “early warning notice” in week 8 if they have not yet attempted 2 checkpoint tests or have not yet logged on
• Only the final mark is provided
  • It’s not sustainable on the academic to endlessly rewrite new questions
  • Exact answer right/wrong not automatically provided, but are provided for viewing at face to face sessions where guidance is given on the spot
  • Encourages students to be self-critical
• It’s simple & elegant, everyone understands what they have to do
• Scatter plots of relative class performance are provided on the LMS
• Tool is equally effective for online courses as it is for blended delivery

Result: Successful implementation (past 3 semesters)

• Students sit the test with textbook in front of them
  • Students effectively forced to read the textbook closely, or at least, search for details in short periods of time
• (an important professional / academic skill)
• Students without texts are effectively penalised
• (Lesson: a professional must be equipped with the right tools)
• Students collude – groups of 4 are common
  • This actually deepens their understanding since they are now exposed to 40 questions rather than just 10 each
• No doubt, there is group discussion
• The student’s natural tendency to “cheat” tricks them into learning more, in a more natural setting
• Validation: Because of the open book / MCQ nature, the task has a very low weighting (only 10%)
  • Enough to make it matter to students…
  • …but not enough to be a decisive factor in a pass / fail situation
  • This assessment tool does not assess competence by itself, rather it rewards interaction 
• Authentication: “cheating” aspect is minimised since it is only worth 10% of the final grade
  • Each student maintains their own incentives to remain engaged since the mark goes against their name.
• To the student, it (deceptively) feels like standard summative assessment
  • Compare to “assess a reflective blog on Moodle”
• Students agonise over their MCQ result despite the low weighting
  • This encourages deeper learning earlier on
  • Low scores are used as early warning indicators
• Online formative MCQs reduces the exam weighting, diversifying the mechanisms a student demonstrates achieved learning
• Anecdotally, exam responses have significantly improved with deeper understanding
• I acknowledge I do not have quantitative evidence to prove the efficacy of these claims; however I am looking for research opportunities for verification.

If you have any queries or would like to find out more about this program please do not hesitate to contact me via email phillip.wong@holmesglen.edu.au

Reference: 

Boud, D. (2000). Sustainable assessment: rethinking assessment for the learning society. Studies in Continuing Education , 151-167.

Movies on accounting and business - Part 1 (4 movies only)

It's sort of hard to believe but the number one reason people search my blog is for "ACCOUNTING MOVIES".  It just goes to show the world is full of nerds like myself.  So here goes the first three


Film:

Pirates of Silicon Valley

Ideas

Entrepreneurialism: Tells the story of Steve Jobs and Bill Gates.  

Why it makes the list?

Great film, and accurate enough that you actually get a bit of important American computer history in there. You (of course) must remember that it is a DEPICTION of reality and not reality reality

Good or bad?

Great.

A short introduction to agency theory - Part 2, Costs of Agency

A short introduction to agency theory - Part 2,
Costs of Agency

Click here for part Part 1

This gives rise to the “costs of agency”, which are costs incurred where the principles have incentives to do things that are not in the interests of the principles.  For example, managers (like any employees) may steal thing from work, of they may use company resources in a selfish and extravagant way.  Have you ever seen the offices of the big bank’s CEOs?  Do they really need to fly in their own private helicopter or Lear Jet? Or perhapsthe trip in a regular jumbo get the job done just as efficiently.  These lavish items are called “perquisites”.  A perquisites is any service or thing regarded as a special right or privilege enjoyed as a result of one's position.  It’s the whole point of climbing to the top of the corporate ladder.

A short introduction to agency theory - Part 1

A short introduction to Agency Theory

Where ever you look in society, you can see people doing things for other people.  Rather than asking as a blind unthinking robot merely processing instructions, the doing person often has some degree freedom as to how they go about the task. 

Let’s call person doing things, “the agent” and the person who benefits “the principle”.  In the standard corporate setting, you have shareholders who pool together cash and delegate the authority to manage those funds as they best see fit.  We actually see this in all walks of life.

Perhaps the most fundamental example is that of mother and child.  The child is unable to do things for itself, and so the mother must act to feed, clothe and protect the child in a way that is selfless to the mother and importantly, always in the child’s best interest.  In this sense, the CHILD is the principle and the MOTHER is the agent of the child.