An EICAA partner's point of view
Risk-taking or safety first? – MCI
Running a business in an uncertain market environment involves taking risky decisions at a daily basis. Risk-taking can be defined as actions or choices when dealing with risk (Hoskisson et.al., 2017). While entrepreneurial activity is strongly associated with risk-taking, it is by far not an easy question to answer how much risk is the right one to take. Before trying to answer if an entrepreneur should act risk-seeking, risk-neutral or risk-averse in his/her business decisions, we must first discuss risk propensity and risk perception as central influencing concepts in risk-taking.
“Risk-taking is influenced by risk propensity and risk perception (Sitkin and Pablo, 1992). Risk propensity is the preference for how much risk to take, while risk perception is a subjective assessment of the risk (Sitkin and Pablo, 1992). Thus, for taking a decision under risk, the entrepreneur has a perception of the risk, which is affected by problem framing, familiarity or organizational control systems for instance. Risk propensity is based on a risk preference and might depend on outcome history or inertia (Sitkin and Pablo, 1992). Risk is traditionally conceptualized as probability and consequence of an event. However, a broader definition of risk as “a situation or event where something of human value (including humans themselves) is at stake and where the outcome is uncertain” (Aven and Renn, 2009, p. 3) seems more fruitful to capture entrepreneurial decision making under uncertainty.
To assess which amount of risk is the right to take, it is thus important to conclude that blindly seeking more risk than others does not lead to success. Rather, perceiving and thus assessing the risk better than competitiors in combination with the willingness of taking the risk is the key for successful entrepreneurial risk-taking. This argument is supported by studies differentiating between risk perception and risk propensity (e.g. DOSPERT scale, Blais and Weber, 2006; Shadbolt and Olubode-Awosola, 2016; Lammers, Willebrands and Hartog, 2010).
Author: Gundula Glowka (EICAA Core Staff), MCI | The Entrepreneurial School®
Further blog posts by MCI:
Global Conference on “Responsible Management” at MCI
Blais, A. R., & Weber, E. U. (2006). A domain-specific risk-taking (DOSPERT) scale for adult populations. Judgment and Decision making, 1(1).
Glowka, G. (2022): Risk Perception, Risk Taking and Resilience. RENT XXXVI, Naples, Italy, November (16) 17-18, 2022. ISSN: 2219-5572
Hoskisson, R.E. et al. (2017) ‘Managerial Risk Taking’, Journal of Management, 43(1), pp. 137–169. doi: 10.1177/0149206316671583
Lammers, J., Willebrands, D. and Hartog, J. (2010) Risk attitudes and profits among small enterprises in Nigeria: econstor.eu. Available at: https://www.econstor.eu/handle/10419/86795.
Shadbolt, N.M. and Olubode-Awosola, F. (2016) ‘Resilience, risk and entrepreneurship’, International Food and Agribusiness Management Review (19), pp. 33–51.
Sitkin, S.B. and Pablo, A.L. (1992) ‘Reconceptualizing the determinants of risk behavior’, Academy of management review, 17(1), pp. 9–38.