Managerial Risk-Taking: An Empirical Study

By Kamalanabhan, T. J.; Sunder, D. L. | Social Behavior and Personality: an international journal, January 1, 1999 | Go to article overview

Managerial Risk-Taking: An Empirical Study


Kamalanabhan, T. J., Sunder, D. L., Social Behavior and Personality: an international journal


It is generally believed that managers are more risk-taking than others. However research has shown managers to be both risk-averse and risk-seeking, depending on the target performance or reference points. The present study is an attempt to see if managers differ from others in risktaking propensity. Managers, non-managerial employees and MBA students from different organisations in Madras were administered the CDQ and modified Risk-in-Basket. Results of ANOVA and Chi-square analysis show that managers, potential managers (M.B.A. students), and non-managerial employees do not differ significantly in risk-taking as measured by the instruments used. The study concludes on the note that managers may be attributed higher risktaking due to their ability and that what is really expected from our managers is successful risktaking, rather than more risk-taking.

Managerial risk-taking is a topic of interest because the impact of managerial decisions can be far reaching (be it in politics, education or business). Important managerial decisions take place under conditions of incomplete information, and managers have to recognize the risks invovled when evaluating alteratives. While normative theory suggests that information should be gathered till costs outweigh the benefits, requirements of expediency often make it necessary to decide with available information. In such situations, the manager's risk-taking propensity can play an important part.

Research has shown (Brown, 1965), that risk-taking is valued by society and that most people consider themselves more risk-taking than the average (Levinger & Schnider, 1969). Managers also rate themselves more highly on risk-taking than the average (March & Shapira, 1988) and consider risk-taking as an important managerial function. Swalm (1966) in his study of 32 business executives found them "risk-averse" - meaning that executives would not recommend a project with a 50-50 chance of making Rs. 250,000 or losing Rs. 50,000. This was interpreted to mean that the lower levels screen out all proposals except the low-risk, low-gain type, and that the top decision-makers never get to rule on many potentially desirable opportunities. Swaim concludes "If the decision-makers interviewed are at all representative of U.S. executives in general, our managers are surely not the takers of risk so often alluded to in the classical defense of the capitalistic system."

McCelland (1961) has reported that achievement motivation is an important aspect of the managerial personality, and found moderate risk-taking to be associated with high achievement motivation. Brockhaus (1980), in a study of managers who had recently turned entrepreneurs and managers who had recently changed jobs or positions, found them to be moderate risk-takers. While these studies would lead one to believe that managers are risk-averse, Laughhunn, Payne and Crum (1980) found evidence of risk-seeking among managers. They examined riskpreferences for below target returns (losses) of 237 managers from the United States, Canada and Europe, and found managers to be risk-seeking for belowtarget returns when nonruinous losses are involved. Ruinous loss, on the other hand, affected risk-preference - leading to risk-aversion in a majority of the managers.

Additional support on risk-seeking behavior was found by MacCrimmon & Wehrung (1984) who studied over 400 top-level executives using the risk-inbasket instrument. The results indicate that, while executives tend to postpone decisions and modify risks, they have a relatively strong tendency towards risktaking, particularly when the payoffs are negative. In a subsequent article (MacCrimmon & Wehrung, 1990) they investigated the relationship between risktaking propensity and a variety of socio-economic characteristics - and found that risk-taking correlated positively with success, and negatively with maturity. The results of MacCrimmon's work is heartening-considering the comments of some industrialists in the popular press that our managers need to be more risk-taking. …

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