Sitkin and Pablo (1992) suggest a research agenda guiding future research on risky decision making by individuals but note many of the hypotheses represented by the model "... may be equally applicable to organizations as decision making entities" (p. 32). Our study tests part of their model at the organizational level and we examine 4 of the 5 constructs considered by Sitkin and Weingart (1995). However, in contrast to Sitkin and Weingart, we a) investigate the effects of inertia rather than outcome history as an antecedent predictor and, b) predict risk propensity and risk perception will partially rather than fully mediate the effects of our antecedent variables.

Figure 1 captures many of the key ideas reflected in Sitkin and Pablo's (1992) model and depicts our direct and mediated effect hypotheses (path coefficients noted in the figure are addressed in results section). In contrast to their model, Figure 1 suggests that the effects of the 2 antecedent characteristics studied (i.e., inertia and problem framing) are partially mediated by risk propensity, risk perception or both.. Beginning with the dependent variable, riskiness of decision making, we move left in Figure 1 to define variables in our model and introduce hypotheses.

Insert Figure 1 about here

Riskiness of decision making varies with the degree of risk associated with decisions made. Individual decisions are riskier to the extent that a) their expected outcomes are more uncertain and their is a potential for great loss, b) decision goals are more difficult to achieve, c) the potential outcome set includes some extreme consequences (Sitkin & Weingart, 1995). Definitions of decision risk at the organizational level (e.g., Baird & Thomas, 1985) reflect these same ideas suggesting conceptual equivalence in this construct across level.

Sitkin and Pablo (1992) contend that risk propensity, the tendency to take or avoid risks, is a relatively stable characteristic but can be modified through experience. Risk averse individuals overestimate the probability of loss which deters risk taking whereas risk prone individuals underestimate the probability of loss which encourages risk taking. This positive association between risk propensity and risky decision making by individuals is expected to translate to organizations through top management teams (TMTs). Extrapolating from Hambrick and Mason's (1984) upper echelon model, we assert the typical risk propensity of TMT members will explain significant variability in the riskiness of organizational decisions.

Risk perception, the perceived degree of risk inherent in a situation, has been the subject of considerable attention due to its expected impact on risky decision making behavior. The perception of risk by individuals and organizations alike is related to a number of factors such as the perceived controllability of outcomes (e.g., Baird & Thomas, 1985) and risk propensity (e.g., Sitkin & Pablo, 1992).


Our model posits that risk propensity and risk perception partially mediate the effects of inertia and problem framing, on risky decision making behavior. Our specific study hypotheses are discussed below.

Individuals (MacCrimmon & Wehrung, 1986), like organizations (e.g., Douglas, 1985), develop predictable patterns of response to risk. The effects of these inertial patterns are non-trivial and can "..transcend changes in situational risk" (Sitkin & Pablo, 1992, p. 17). Our first hypothesis (H1), therefore, predicts: Organizations with inertial response patterns that are risk-seeking will be more likely to make risky decisions than organizations with inertial response patterns that are risk-avoiding.

The notion that organizations tend to seek out and retain managers that subscribe to key organizational values and philosophies (e.g., Miles & Creed, 1995) implies a link between inertia and the risk propensity of TMTs (e.g., firms with inertial response patterns which are risk seeking (risk avoiding) will attract managers who are risk-prone (risk averse)). In light of this logic, our second hypothesis (H2) predicts: There will be a positive association between risk-seeking inertia and the top management team's risk propensity.


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