To risk or not to risk?

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In times like these of extreme uncertainty, it's worth pondering the culture and psychology of risk-taking.

Although much business activity has been put on hold lately, executives are still required to make decisions about possible future actions under extreme uncertainty, which means taking risks.

What can we learn from research?

Different attitudes to risk can be discussed at the levels of national culture, the enterprise, and the individual.

At the level of national culture, countries differ on their degree of openness to risks and uncertainties. Research reveals that people in Scandinavian countries are more open to taking risks, while in Greece and Portugal they are reluctant to do so. In Asian cultures, with their respect for hierarchy and tendency to avoid conflict, the unwillingness to take risks is reflected in the fact that workers will not dare to suggest an alternative to an idea of their superior. A multinational corporation operating in India has tried to overcome this obstacle by holding "Courage Workshops" at the local middle-management level.

At the enterprise level, male and female managers behave differently. Research has shown that in stressful times women tend to behave in a more calculated way while men are more willing to take risks. Further, in the specific case of career management, research has found that women are more likely to take risky decisions to advance the organization they work in than risky decisions to advance their careers (e.g., asking for a pay raise).

As individuals, we try to predict the risk-taking behavior of other players in our business environment. Research has found that we have an unconscious bias - there is a tendency to think that physically strong, tall, and attractive people will take more risks.

Also, risk can be communicated in a variety of ways. The classic work of Kahneman and Tversky has led us to think about risks in terms of gain or loss: people like to gain (e.g., make a profit), but care even more about not losing. Recent research in Singapore on how to persuade people to become vaccinated shows that people cooperate with the authorities more when the communication includes a "loss frame": the message emphasizing what people will lose if they are not vaccinated, compared with what they will gain if they are vaccinated.

Implications

Calculated risk-taking is essential for business growth and for coping effectively with the changing competitive landscape. Furthermore, an enterprise cultural climate that promotes risk-taking and includes experimentation while not punishing employees for failures, encourages innovation and entrepreneurship.

In multinational corporations, it is important to recognize that different countries treat risks differently.

To improve decision-making in stressful and uncertain times, it is worth ensuring that there is a gender balance in work teams and in management.

At the individual level, risk-taking enables people to stand out and reap financial rewards. Calculated risk-taking has an impact on career advancement and personal growth.

In health contexts, and especially when policymakers want to avert risk, it is worth thinking about presenting the message in a loss frame.

Professor Amir Grinstein studies and teaches pro-social marketing and entrepreneurship at Northeastern University in Boston and VU in Amsterdam. He writes on Twitter about behavioral research @AmirGrinstein

Yana Shechterman is an organizational consultant, executive coach, and part-time lecturer at Northeastern University in Boston. On Twitter @shechterman

Published by Globes, Israel business news - en.globes.co.il - on May 21, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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