Coleman Why Managers and Companies Take Risks

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

E-Book, Englisch, 351 Seiten

Reihe: Contributions to Management Science

The book answers a simple question: when managers and companies face a decision with two outcomes that are safe and risky, what leads them to choose the risky alternative? The answer starts with a detailed review of the theory behind risk and decision making by managers. The book then gathers real-world evidence using two surveys of senior managers and directors to analyze why they take risks, and how companies control risks.

Autoren/Hrsg.

Coleman, Les

Inhaltsverzeichnis

1;Preface;6
2;Contents;8
3;CHAPTER 1 Introduction;12
3.1;Research Problems Tackled by this Book;12
3.2;The Analytical Strategy of this Book;18
3.3;The Contribution of this Book;25
3.4;This Book in Context of the Literature;27
4;CHAPTER 2 Theory of Risk and Decision Making in Management;32
4.1;Definitions of Risk;32
4.2;Incorporation of Risk into Decision Making Theory;39
4.3;Specifying Managerial Risk Preference;42
4.4;Summary and Conclusions;49
5;CHAPTER 3 Behavioural Evidence on Risic and Decision Making;52
5.1;Human Studies of Risk and Decision Making;56
5.2;Summary of Experimental Findings;67
6;CHAPTER 4 Real-World Decision Making Under Risk;74
6.1;Principal Studies;74
6.2;Bayesian Considerations in Risky Decision Making;87
6.3;Other Influences on Risky Decision Making;91
6.4;Decision IVIaking Evidence from Racetrack Gambling;92
6.5;Discussion;96
6.6;Summary;100
7;CHAPTER 5 Risk-Taking and Organisation Performance;102
7.1;Financial Risk and Performance in Organisations;102
7.2;Studies of the Impact of Risk on Firm-Specific Retums;107
7.3;Company Influences;107
7.4;Longshot Bias in Organisations;114
7.5;Summary and Conclusions;118
8;CHAPTER 6 Published Models of Decision Making Under Risk;126
8.1;Models of Decision Making Under Risk;126
8.2;Mathematical Models;126
8.3;Prospect Theory: Does It Describe Reality?;130
8.4;Discussion and Conclusions;153
8.5;Inadequacies of Current Decision IVIaking IVIodels;155
9;CHAPTER 7 Why Managers Take Risks;160
9.1;Summary of Decision Making Behaviours;160
9.2;Research Methodology;165
9.3;Measures of Survey Respondents' Personal Traits;170
9.4;Research Deficiencies;175
9.5;Managerial Risk Taking: Carter Racing Team Scenario;176
9.6;Discussion;190
10;CHAPTER 8 How Companies Control Risks;196
10.1;Data and Respondents' Characteristics;196
10.2;Organisational Risk Strategies;198
10.3;Executives' Perceptions of the Business Environment;205
10.4;Executives' Attitudes Towards Risic;206
10.5;Risk Outcomes for Organisations;210
10.6;Influence of Risk on Financial Results;220
10.7;Corporate Risk Propensity;222
10.8;Discussion;228
11;CHAPTER 9 Summary and Discussion;236
11.1;Influence of Risk on Real-World Decision Making: An Update of Applied Behavioural Economics;236
11.2;Identification with Outcome;247
11.3;The Links Between Risk and Organisation Performance;252
11.4;Measures of Organisational Risk;252
11.5;Conclusion;258
12;CHAPTER 10 Risk Budget Theory;260
12.1;Key Elements of Decision Making Under Risk;260
12.2;Decision Maker Personality and Perception;260
12.3;Outline of Risk Budget Theory;266
12.4;Risk Budget Theory;266
12.5;Discussion;272
12.6;Validation of Risk Budget Theory;276
12.7;RBT's Explanation of Financial Decisions;276
12.8;Conclusion;281
13;CHAPTER 11 Conclusions;288
13.1;Answers to the Research Questions;288
13.2;What Leads Managers to Choose a Risky Alternative?;288
13.3;Enterprise Level Risk Strategy;292
13.4;Endnote;300
13.5;Letter to Potential Respondents;303
14;References;338
15;Index;358

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.