Organizational risk taking: adaptation versus variable risk preferences

Jerker Denrell

Industrial and Corporate Change, 2008, vol. 17, issue 3, 427-466

Abstract: The observed association between performance and organizational risk taking has usually been attributed to the influence of performance on risk preferences. Here I show how a simple model of adaptation, which only assumes that organizations avoid activities with poor past performance, can explain the empirically observed U-shaped association between risk and return. The model also makes novel predictions, which are shown to be consistent with the data. The findings suggest that risk taking may be a by-product of adaptation rather than a deliberate choice motivated by variable risk preferences. Copyright 2008 , Oxford University Press.

Date: 2008
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