Coleman Why Managers and Companies Take Risks

1. Auflage 2007
ISBN: 978-3-7908-1696-9
Verlag: Physica
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 351 Seiten, eBook

Reihe: Contributions to Management Science

This book uses risk in its dictionary meaning as the probabiHty of an unde sirable outcome, and has two research questions: when managers make de cisions, what leads them to choose a risky alternative? and: what deter mines whether the decision proves correct? Answers to these questions form a model of decision making that explains the process and results of managers' risk-taking in the real world. There is an extensive literature on risk and decision making because the topic has been of interest in many disciplines since at least the 18^^ century. Thus insights on the research questions are available from studies of ani mals, humans and organisations; and have been drawn by scholars in biol ogy, psychology, finance and management. Even so, there is a large gap as most studies are conducted away from corporate settings and use subjects with limited decision experience. The few studies set in real-world condi tions tend to concentrate on just a single aspect of decision makers' attrib utes, setting and behaviour, and on either decision choices or outcomes. The empirical work in this book is designed to fill part of this gap.

Zielgruppe

Professional/practitioner

Autoren/Hrsg.

Coleman, Les

Inhaltsverzeichnis

Theory of Risk and Decision Making in Management.- Behavioural Evidence on Risk and Decision Making.- Real-World Decision Making Under Risk.- Risk-Taking and Organisation Performance.- Published Models of Decision Making Under Risk.- Why Managers Take Risks.- How Companies Control Risks.- Summary and Discussion.- Risk Budget Theory.- Conclusions.

Leseproben

CHAPTER 4 Real-World Decision Making
Under Risk (S. 63-64)

This chapter provides a summary of the Hterature on real-world decisions by individuals who face risk, and complements previous discussions which looked at the theory of risk-taking and reported the findings of experimental behavioural studies.

The chapter begins with a description of the principal studies which are representative of individuals' risky problem solving in the real world, then reports relevant findings from studies of racetrack wagering markets, and closes with a summary and brief conclusions.

Principal Studies

Empirical studies which illuminate real-world decision making under risk or uncertainty fall into two broad categories. The first measures individuals' ex ante beliefs, for example by using case studies describing a typical real-world decision [e.g. Sitkin and Weingart (1995)], or in controlled experiments that simulate real-world outcomes [e.g. Fox and Tversky (1998)].

The second type of study involves ex post analysis of micro-economic data which reveals the collective outcome of many people's individual decisions in relation to the same question. An example is Lease et al. (1974) who accessed the trading history of customers at a New York broking house and sent them a questionnaire. A warning to readers, though, is that studies of this type are few as most field studies have not attempted to incorporate personality or demographic measures, but deduced risk attitudes from large, anonymous groups.

Personality and Risky Decision Making

Common management strategies (such as personnel selection, training and placement) rely on stability in individuals' personality and assume that managers make similar decisions across varying situations. Thus it is not surprising to find a considerable number of real-world studies link personality to risk-taking.

MacCrimmon and Wehrung (1990) obtained comprehensive data on the characteristics and behaviour of 509 senior executives in North America, and developed 13 measures of personal and business risk. They found that risk taking rose with professional success, and declined with age and education. Williams and Narendran (1999) included a test to evaluate the need for achievement in their study of managerial risk-taking and found it correlated (r=0.33, p<,0.01) with managerial risk preference.

Smith and Friedland (1998) obtained survey responses from 102 mid level nurse managers in 14 US hospitals. Risk taking was more likely amongst managers with at least a bachelor's degree, higher autonomy orientation (a world that is supportive of free choice), and lower control orientation (the environment constrains behaviour to norms). Trimpop (1994: 281) prepared a comprehensive study entitled The Psychology of Risk Taking Behavior and concluded that: "personality risk factors play a significant role in risk taking behavior, but they play a less important role (5-25 percent of variance explained) than situational factors do."

This may be too low an estimate based on the table below which summarises the amount of variance in risk-taking which published studies found was explained by personality. These contemporary studies in realworld settings suggest that about 30 percent of risk propensity is explained by personality.