Skilled managers understand that strategic risk taking is essential to success. Afterall, an overabundance of caution can result in missed opportunities, whereas recklessness can result in disaster. For that reason, researchers have focused on when and how people decide to take risks. Previous studies have shown that personality factors such as achievement motivation, extraversion, impulsiveness, and sensation seeking are associated with risk taking. Demographics are relevant, as individuals who are male and young tend to take more risks. Additionally, risk taking can be affected by incentive, mood, emotional state, and the way people think about their present situation.
Most prior research on risk taking has focused on how individuals make decisions in isolation. Given that most work takes place in a social environment, it is important to understand how relationships affect risk taking behavior.
RIVALRY AND STRATEGIC RISK TAKING
To investigate how relationships affect risk taking, researchers (To, Kilduff, Ordoñez, & Schweitzer, 2018) studied how decisions are made when competing with a rival. Rivalry is a unique relationship that involves more than just conflict and competition. The stakes are higher when competing with a rival, and individuals are focused on status, not just victory.
Previous research has shown that when competing against rivals, people are more action-oriented and willing to exert effort. They are also more likely to engage in unethical behavior to gain a competitive advantage. Prior to this study, it was unclear how rivalry affects risk taking: On the one hand, people might take fewer risks because they are motivated to avoid losing; on the other hand, people might take more risks because they are motivated to attain a deeply meaningful victory.
RESEARCH STUDY RESULTS
To study how rivalry affects risk taking, the authors conducted two studies. In the first study, they examined archival data from the National Football League. Using advanced statistical analysis, they found that teams were more likely to attempt risky plays when they were competing against rivals.
In the second study, the researchers conducted a laboratory experiment. In the experiment, college students were told they were competing in a game against a student from a rival college. When competing against rivals, students were more willing to take risks in the game. This experiment included measures of the students’ mindsets and bodily states. They found that when students competed against rivals, they focused more on maximizing gains than on minimizing losses, and they showed an increase in heart rate and sweating. These changes – in turn – increased the chances of risk-taking behavior.
PRACTICAL IMPLICATIONS FOR MANAGEMENT
This study has a number of crucial implications for management, human resources, and organizational development. Workplaces can increase rivalry in a variety of ways, including designing jobs so that rivalry is built into employee relationships, educating employees about historic rivalries during training, and publically ranking employees and organizations based on performance.
However, these interventions must be used strategically. Organizations that engage in work where mistakes are costly and damaging (e.g., legal and accounting firms) want to minimize rivalry, as rivalry will increase risk-taking behavior. By contrast, organizations that engage in work where risks can result in substantial gain (e.g., investment banking) might encourage rivalry.
Of course, the extent to which rivalry should be employed to increase risk-taking depends on the organizational culture. If the culture is one where risk taking is already encouraged, then adding rivalry could increase risk taking to a detrimental degree. Therefore, risk-taking behavior should be carefully assessed and measured before rivalry is used as an organizational intervention.
To, C., Kilduff, G. J., Ordoñez, L., & Schweitzer, M. E. (2018). Going for it on fourth down: Rivalry increases risk taking, physiological arousal, and promotion focus. Academy of Management Journal, 61(4), 1281-1306.