Organizational Risk Taking

Résumé du livre

Inspired by the behavioral theory of the firm and prospect theory, a large empirical literature has examined the association between performance and organizational risk taking. Such associations have often been attributed to the influence of performance on risk attitudes. This paper shows that a simple learning model, which only assumes that organizations avoid activities with low performance, can account for several empirical regularities usually attributed to variable risk preferences. The model also makes several novel predictions and suggests different empirical tests. An application of such tests to data used in the previous literature, return on assets, show that the findings are inconsistent with the usual explanations but consistent with the learning model.