Determinants of Risky Decision-Making Behavior: A Test of the Mediating Role of Risk Perceptions and Propensity Author(s): Sim B Sitkin

and Laurie R. Weingart Source: The Academy of Management Journal, Vol. 38, No. 6 (Dec., 1995), pp. 1573-1592 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/256844 . Accessed: 24/09/2011 02:10
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? Academy of Management Journal 1995, Vol. 38, No. 6, 1573-1592.

DETERMINANTS OF RISKY DECISION-MAKING BEHAVIOR: A TEST OF THE MEDIATING ROLE OF RISK PERCEPTIONS AND PROPENSITY
SIM B SITKIN Duke University LAURIE R. WEINGART Carnegie Mellon University
The reported research examined the usefulness of placing risk propensity and risk perception in a more central role in models of risky decision making than has been done previously. Specifically, this article reports on two studies that examined a model in which risk propensity and risk perception mediate the effects of problem framing and outcome history on risky decision-making behavior. Implications of the pattern of results for future research are discussed.

Most scholars who have studied decision-making behavior in risky organizational situations have focused on the direct effects of one or two determinants of this behavior. However, such an approach does not adequately reflect the complex sets of influences on risk behavior in organizations. In addition, it has led to contradictions in the literature and potentially inaccurate conclusions about the causes of decision-making behavior (Sitkin & Pablo, 1992). For example, Kahneman and Tversky's "prospect theory" (1979) conclusion that negatively framed situations lead to greater risk taking contradicts the results of research by March and Shapira (1987) and Osborn and Jackson (1988). In an attempt to build upon these direct effects approaches, Sitkin and Pablo (1992) proposed a mediated model of the determinants of risky decision making, theorizing that the effects of a number of previously examined variables on risk taking were not direct but were instead mediated by risk propensity and risk perception. Their model extended the direct effects approaches and posited a direct causal effect between the variables studied and risk taking. In addition, where direct effects approaches have predicted specific choices under conditions of risk, Sitkin and Pablo focused on the process of making risky decisions. This article reports two studies that provide initial tests of key portions of the SitkinPablo approach.
We would like to thank Robyn Dawes, George Huber, Amy Pablo, Gerald Salancik, David Schkade, Michael Hitt, and three anonymous reviewers for their helpful comments on earlier versions of this article.
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CLARIFYING KEY CONSTRUCTS AND DISTINCTIONS Sitkin and Pablo (1992) reviewed a number of potentially relevant individual, organizational, and problem characteristics that have been identified as predictors of risky individual decision making. Perhaps the most significant focus of their analysis was the previously distinct effects of outcome history and problem framing, which they argued had been overconfounded-in looked-and sometimes unintentionally prior work. Specifically, Sitkin and Pablo suggested that previous contradictory findings could be explained by disentangling outcome history from problem framing. Following their theoretical emphasis, we focus on these two frequently studied predictors of risky decision making. This choice was guided by our desire to stress variables whose effects were predicted by Sitkin and Pablo to be mediated by risk propensity and risk perceptions, so as to provide an initial test of their core propositions. Although it focuses on only a subset of the broader model, Figure 1 reflects the core ideas underlying the mediated model of the determinants of risky decision making and captures its most critical variables. First, it represents antecedent characteristics as affecting decision making only indirectly, through their effect on risk propensity and risk perceptions; this is the mediated aspect of the model. In addition, the paths shown in Figure 1 are numerically keyed to the hypothesized bivariate relationships between the variables of the model (discussed later in the article). Before addressing the rationale for each relationship posited in the model we should define several key constructs, since these distinctions underlie several of our arguments. Variables identified in the Sitkin and Pablo (1992) model addressed here include their dependent variable, decision risk, their proposed mediating variables (risk perception and risk propensity), and two key exogenous predictor variables that they identiFIGURE 1 Mediated Model of the Determinants of Risky Decision-Making Behaviora
Outcome History
H1

Risk Propensitysk

~H4^
H3 v Problem Framing + H2 Risk Perceptionsk _ H5
>

Risky DecisionMaking Behavior

a The numbers shown on the paths of the model are keyed to some of the hypotheses discussed herein. Several hypotheses are not shown here because they represent the mediation hypotheses rather than a specific hypothesized relationship. Specifically, Hypotheses 6 and 7 posit that the effects of outcome history on risky decision making and risk perception are mediated by risk propensity, and Hypotheses 8 and 9 posit that the effects of problem framing and risk propensity are mediated by risk perception.

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fled as characterizing the person and the situation: outcome history and problem framing. Each of these five constructs is defined below. Decision risk is a construct used to characterize the alternatives confronting a decision maker; it can, for example, describe how undesirable the likely effects of an alternative are and the likelihood of their occurrence. Risk can also be used to characterize an overall decision-how risky it is compared to other alternatives. Following Sitkin and Pablo, we defined decision risk as "the extent to which there is uncertainty about whether potentially significant and/or disappointing outcomes of decisions will be realized" (1992: 10). To the extent that a decision involves high uncertainty or extreme outcomes, either in terms of the choice among alternatives or for individual alternatives in aggregate, the decision is characterized as risky. Included in the model are two direct determinants of decision riskalso serve as mediators of anrisk perception and risk propensity-that tecedent characteristics of the decision maker and the problem situation. Risk perception is defined as an individual's assessment of how risky a situation is in terms of probabilistic estimates of the degree of situational uncertainty, how controllable that uncertainty is, and confidence in those estimates (Baird & Thomas, 1985; Bettman, 1973). Risk propensity is defined as an individual's current tendency to take or avoid risks. It is conceptualized as an individual trait that can change over time and thus is an emergent property of the decision maker. This definition of risk propensity, which follows Sitkin and Pablo (1992), is related to but departs in a critical way from previous conceptualizations of propensity as a stable dispositional attribute (e.g., Fischhoff, Lichtenstein, Slovic, Derby, & Keeney, 1981; Rowe, 1977). It is interesting to note that even critics of the predictive value of the risk propensity construct (e.g., MacCrimmon & Wehrung, 1990; Schoemaker, 1990) have employed the traditional conception of risk propensity as a stable individual attribute. We are contrasting the traditional conception of risk propensity as "a stable and constant" dispositional attribute (Wolman, 1989: 103) with our conceptualization of it as a changeable trait that is "persistent" (Sutherland, 1989: 452) or "enduring" (Goldenson, 1984: 757) but can be "learned or inherited" (Corsini & Osaki, 1984: 542-543). Hair color or facial feacited as examples of traits (e.g., Goldenson, 1984)-iltures-frequently lustrate the concept of persistence and change in that hair color responds to exposure to the sun and facial features can be altered through cosmetic surgery. Similarly, a trait-based definition of risk propensity conceptualizes the construct as a cumulative tendency to take or avoid risks that is simultaneously persistent and can change over time as a result of experience. By focusing on the important role of past experience, this conceptualization can account for the capacity for people to adapt without denying that as individuals gain more experience, they may be less susceptible to contextual influence and more likely to exhibit cross-situational consistency. Thus, our approach to risk propensity as "stable but change-

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able" both builds upon and modifies the traditional "stable and constant" view. Although the tendency to take risks (i.e., risk propensity) is almost certainly related causally to making riskier decisions, as we will hypothesize and test below, the two constructs are not synonymous because a number of factors can impede the realization of a decision maker's tendencies in any particular instance. Even an individual who consistently leans toward seeking risks could in a specific case, such as a business investment, fail to act on this tendency, because of inadequate funding, a missed appointment, an unexpected illness, a natural disaster, or other obstruction. We also examined two exogenous variables posited in Sitkin and Pablo's (1992) model. Problem framing refers to whether a situation is presented to a decision maker as an opportunity or a threat (e.g., Jackson & Dutton, 1988) or in terms of gains or losses (Kahneman & Tversky, 1979). That is, the situation can be portrayed in a generally positive or negative light. Outcome history, a person-situation interaction characteristic, is defined as the degree to which the decision maker believes that previous riskrelated decisions have resulted in successful or unsuccessful outcomes. For our purpose, this variable reflects an individual's overall mental representation of how well he or she has fared in the past in similar situations (see Sitkin [1992] and Weick [1984] for reviews). A MEDIATED-EFFECTS MODEL OF THE DETERMINANTS OF RISK BEHAVIOR Determinants of Risk Propensity Outcome history. Although outcome history is posited here to affect decision making, the role of outcome history has been notably absent in many theories of risky decision-making behavior. Nearly all studies have focused on either individual risk orientation (MacCrimmon & Wehrung, 1986a, 1986b, 1990) or decision maker computation of risk (Dyer & Sarin, 1982; Tversky & Kahneman, 1986) while essentially ignoring the potentially important role of previous decisions made and their outcomes. This ahistorical viewpoint is challenged by recent research findings showing that prior success in taking risks can increase the propensity to take risks. For example, the work of March and Shapira (1987), Osborn and Jackson (1988), and Thaler and Johnson (1990) found that decision makers will persist in taking risks if prior risk-related actions were successful. Hypothesis 1: The more successful the outcomes of a decision maker's risk-related decisions have been, the higher his or her risk propensity. Determinants of Risk Perception Problem framing. An important influence on a decision maker's risk perceptions is whether a problem is framed in positive or negative terms.

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In an influential study of individual risk behavior under conditions of varied problem frames, Kahneman and Tversky (1979) formulated prospect theory, noting that positively framed situations led to the making of riskaverse decisions, whereas negatively framed situations led to risk seeking. A number of succeeding studies (e.g., Neale, Bazerman, Northcraft, & Alperson, 1986; Singh, 1986; Tversky & Kahneman, 1986, 1992) have found the influence of problem framing on decision making to be robust. However, none of these studies has directly examined the causal mechanisms underlying the observed behavioral effects posited in prospect theory. If perceptions and other omitted mechanisms are left unexamined, it remains unclear how problem framing comes to affect decisions. Following Sitkin and Pablo (1992), we hypothesized that framing directly affects how risky a situation is perceived to be, which in turn leads to the behavioral outcomes they observed. This hypothesis implies that positive frames, which emphasize situational threats to existing resources, may make the risks inherent in a situation more salient (inducing risk-averse behavior), whereas an emphasis on the upside potential for increasing limited holdings or recouping losses may decrease the salience of risks by increasing the salience of opportunities (inducing risk-seeking behavior). Such an explanation is consistent with the nonlinearity that lies at the heart of prospect theory and its empirical support, but it extends prospect theory by suggesting the cognitive mechanism through which observable behavioral responses occur. Hypothesis 2: Positively framed situations will be perceived as involving higher risk than negatively framed situations. Risk propensity. Risk propensity influences the relative salience of situational threat or opportunity and thus leads to biased risk perceptions (Brockhaus, 1980; Vlek & Stallen, 1980). Specifically, risk-averse decision makers (i.e., individuals with a propensity to avoid risks) are hypothesized to attend to and weight potentially negative outcomes more heavily than positive outcomes (Schneider & Lopes, 1986), thus overestimating the probability of loss relative to the probability of gain. Conversely, risk-seeking decision makers are hypothesized to attend to and weight positive opportunities more heavily (March & Shapira, 1987), thus overestimating the probability of gain relative to the probability of loss. Hypothesis 3: The higher a decision maker's risk propensity, the lower the level of perceived situational risk. Determinants of Risky Decision-Making Behavior

Risk propensity. The straightforward intuitive basis for positing that an individual's "willingness to take risks" (MacCrimmon & Wehrung, 1990) affects whether he or she will actually make riskier decisions makes extensive explanation unnecessary. Although the Sitkin-Pablo model has not been tested previously, its core (see Figure 1) concerns the notion that

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an individual's propensity to take or avoid risks affects decision making, an idea that is grounded in a number of previous studies (e.g., Kogan & Wallach, 1964; MacCrimmon & Wehrung, 1986a, 1990). For example, Brockhaus (1980) hypothesized that the overall orientation of an individual toward risk (risk propensity) would predispose some individuals to make riskier decisions than other individuals. Thus, Hypothesis 4: The higher a decision maker's risk propensity, the riskier will be his or her decision-making behavior. Risk perception. Although we have acknowledged that prospect theory does not explicitly consider risk perceptions, Sitkin and Pablo (1992) suggested that the findings of prospect theory research are consistent with a negative relationship between perceived risk and making risky decisions. That is, risk avoidance is greater when threats to assets are salient (high risk is perceived) than it is when an individual perceives little risk because there is nothing to lose. It also seemed reasonable to posit that higher levels of perceived situational risk would be negatively related to making risky decisions since people tend to associate risk with negative outcomes more strongly than with outcome variability (e.g., Levitt & March, 1988). Given this perceptual asymmetry, we hypothesized that actions taken under conditions of higher perceived situational risk would also be perceived to have a lower expected value. Hypothesis 5: The degree to which individuals make risky decisions will be negatively associated with their level of perceived risk. The Role of Risk Perception and Risk Propensity As stated earlier, most previous research has overlooked a critical thecausal mechanisms oretical issue raised by the Sitkin-Pablo model-the by which a variety of exogenous variables come to affect decision-making behavior. As shown in Figure 1, they argued that the direct impact of antecedent variables on risky decision making actually takes place only via the mediating function of risk propensity and risk perception. No theories prior to Sitkin and Pablo (1992) and no empirical work has focused explicitly on the indirect effects of outcome history on risky decision making. Nonetheless, Sitkin and Pablo drew on the earlier work of March and Shapira (1987), Osborn and Jackson (1988), and Thaler and Johnson (1990) to argue that successful or unsuccessful outcome histories affect how decision makers perceived risky situations and acted upon them by influencing what kinds of information decision makers attended to and also by influencing how much those decision makers leaned a priori toward or away from taking risks. Historical success or failure does not, they suggested, direct attention toward specific risk elements of a situation. Instead, their analysis was grounded in the familiar notion that decision makers would be prone to persist in pursuing what worked in the past and to

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abandon what did not. This intuitive argument, they noted, is that outcome history affects a decision maker's propensity to take risks, and that it is the tendency to take or avoid risks that in turn directs attention to high- or lowrisk aspects of a situation (i.e., risk perception) and leads to pursuing or avoiding risky behaviors. Hypothesis 6: The effect of outcome history on risky decision-making behavior will be fully mediated by risk propensity. Hypothesis 7: The effect of outcome history on risk perception will be fully mediated by risk propensity. We hypothesized that risk propensity and problem framing affect risky decision making by influencing what is perceived. Risk propensity is linked to risk perception in several ways; these include limiting what information is attended to and limiting an individual's ability to notice and respond to risky attributes that influence how risky situations will be evaluated. This approach is consistent with previous work that has defined risk perception in terms of situational labeling (Jackson & Dutton, 1988; Staw, Sandelands, & Dutton, 1981) and estimates of the extent and controllability of risks (Baird & Thomas, 1985; Vlek & Stallen, 1980). Thus, risk propensity is not only posited to affect decision making directly, but is also posited to have an indirect effect on risky decision making through its effect on risk perceptions (cf. Sitkin & Pablo, 1992). Hypothesis 8: The effect of risk propensity on risky decision-making behavior will be partially mediated by risk perception. Similarly, the effect of problem framing on risky decision making is mediated by risk perception because framing affects the strength and clarity of an individual's positive or negative perceptions of aspects of a situation. Thus, building on the previously discussed logic of Hypotheses 2 and 5, we posit that: Hypothesis 9: The effect of problem framing on risky decision-making behavior will be fully mediated by risk perception. The overall goal of the empirical research reported in this article was to provide a preliminary test of several key aspects of the mediated model. We describe the results of two studies, each of which tested selected portions of the model.1 Study 1 manipulated outcome history to examine
attempted during pretesting to include these separate aspects of the model in a single experimental design. Although their reactions to each manipulated variable were distinct, when both were used simultaneously we found that subjects confused the two manipulations. Therefore, we ran two experiments that presented subjects with only one manipulation at a time. 1 We

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the hypothesized mediating role of risk propensity and risk perception. Study 2 manipulated problem framing to examine the hypothesized mediating role of risk perception. STUDY 1 Methods Subjects. Thirty-eight master's of business administration students in a required organizational behavior class participated in the study. The subjects' average age was 28.3 years (ranging from 23 to 46), and their work experience averaged 6.2 years (ranging from 0 to 25 years). Sixty-six percent of the subjects were men. Procedures and stimulus materials. The study was a class exercise. A packet containing the stimulus materials and questionnaire was distributed. Subjects were asked to read through the stimulus materials and to individually fill out an attached questionnaire. A modified version of a widely used decision-making case, Carter Racing (Brittain & Sitkin, 1989), was used.2 Carter Racing places decision makers in a situation of risky choice. The case masks the facts of the National Aeronautics and Space Administration's (NASA) decision to launch the space shuttle Challenger in the guise of a decision about whether a race car team should compete in the last race of the season. The decision involves risk in a number of domains, including business risk, personal financial risk, and physical risk. In the study, we focused on the impact of the decision about whether to race on the financial viability of the race car team as an organization-that is, business risk. This particular stimulus was chosen because it avoids a major problem frequently associated with experimental stimulus materials in that it has been found to be highly realistic and quickly engaging. Since the case as originally written fosters highly skewed choice patterns, modifications to the original case were made (concerning information about the racing team's history of success and failure and the amount of money at stake) that would lead to a more balanced distribution of decisions. The basic case information was changed so that the expected value of racing was equal to the expected value of not racing when ambient air temperature was not incorporated into the calculations.3 Variables Outcome history. Outcome history was manipulated after subjects had read the case and before they read the first question of the questionnaire.

The complete text of the revised case is available from the authors. temperature was not included in developing equality across the options (i.e., race/not race) in our revision because it was not incorporated by the Challenger decision makers or by students using the case in the past (Brittain & Sitkin, 1989).
3 Air

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Individuals in the unsuccessful outcome history condition read the following: As Pat Carter,you have had a moderate amount of training for and experience with this type of decision. Your previous decisions have been largely unsuccessful and you have always had a nagging worry that your poor "trackrecord" could eventually have more serious consequences. You feel uncertain because of the lack of success of those decisions you have made in the past. Subjects in the successful outcome history condition read: As Pat Carter,you have had a moderate amount of training for and experience with this type of decision. Your previous decisions have been largely successful and you have always derived a sense of self-assurance from your successful "track record" in making such decisions. You feel confident because of the success of those decisions you have made in the past. A three-item outcome history manipulation check ("Extent to which problems have resulted from Pat's decisions like this in the past," "Degree to which Pat has analyzed decisions like this correctly in the past," and "Degree to which successful outcomes have resulted from Pat's decisions like this in the past") was found to be reliable (a = .71). The manipulation check was found to be significant across conditions

< .001) and in the predicted direction (success condition, x = 4.68, s.d. =0.91; failure condition, x = 3.44, s.d. = 1.08). Decision-making behavior. Immediately following the manipulation, subjects were asked to indicate whether they would race (definitely not race, 0%; definitely race, 100%). Next, a dichotomous forced-choice item (race vs. not race) was presented. The scaled format item is an indirect measure of decision making that gathers data on a subject's intentions, whereas the forced-choice item measures decision-making behavior directly. Because the scaled format allowed for more response variance than did the dichotomous choice format and the two items were highly correlated (r37 = .72, p < .001), we used the scaled format item as the indicator of decision-making behavior (see the Appendix for the text of this and subsequently described items). Risk perception. A four-item scale was adapted from MacCrimmon and Wehrung (1985, 1986a, 1986b) and Wehrung, Lee, Tse, and Vertinsky (1989) to measure the amount of perceived risk associated with the decision to be made (oa= .75). Risk propensity. An original five-item scale for business risk propensity was employed (o = .86). Results Direct effects. The direct effects posited in Hypotheses 1, 3, 4, and 5 were examined through correlation and regression analyses. First, as shown in Table 1, outcome history significantly influences risk propensi-

(F1 36 = 14.68, p

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TABLE 1 1 Descriptive Statistics and t-Test Results Study

Failure Variable Risky decision making Risk propensity Risk perception Mean 58.33 3.73 3.64 Outcome History Conditiona Success s.d. 34.00 1.23 1.28 Mean 77.50 4.51 2.80 s.d. 22.68 1.00 0.87 t -2.06* -2.15* 2.38* df 36 36 36

a Failure, n = 18; success, n = 20. * p< .05

ty (t36 = -2.15, p < .05). Thus, subjects who were informed that Pat Carter (whose role they adopted as decision maker) had successfully made similar decisions in the past reported higher levels of risk propensity for Pat, supporting Hypothesis 1. Second, risk propensity was found to be negatively related to risk perception, supporting Hypothesis 3 (r = -.54, p < .001). That is, when subjects reported higher levels of risk propensity, they also reported that they perceived less risk in the situation. Finally, risky decision making was regressed on risk propensity and risk perception to determine the direct effects of propensity and perception on the decision (R2 = .62, F2,35 = 28.80, p < .001). Although risk propensity did not have a significantly positive association with the decision in the regression analysis (P = .15, n.s.), as hypothesized in Hypothesis 4, the bivariate correlation between risk propensity and risky decision making was significant (r = .52, p < .001). Results showed that risk perception was negatively related to the decision, supporting Hypothesis 5 (P = -.70, p < .001). Mediated effects. Hierarchical regression analysis (Baron & Kenney, 1986) was used to test the potential mediation effects. In the first step of each equation, we tested the direct effects model, regressing risk behavior on the relevant antecedent variables (outcome history, or risk propensity, or both). In the second step, the relevant mediator (risk propensity or risk perception) was added to determine whether it mediated any previously significant relationships. Three tests of mediation were conducted. First, Hypothesis 6 was examined to determine if risk propensity mediated the effect of outcome history on decision making. A stepwise regression analysis predicting decision making was used to test this hypothesis, with outcome history entered in step 1 and risk propensity added in step 2. The direct effects of outcome history explained a significant portion of the variance in risk behavior (R2 = .11, p < .05), and the change in R2 when propensity was added to the equation was significant (AR2 = .19, p < .01). Results from step 1 showed that outcome history was positively related to risky decision making ( = .33, p < .01). When risk propensity was added to the equation, the rela-

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tionship was no longer significant (3 = .17, n.s.), and risk propensity was significantly related to decision making (P = .46, p < .01). In addition, the change in beta associated with outcome history was significant (A3 = .16, t35 = 2.23, p < .05). Thus, Hypothesis 6 was supported. Second, Hypothesis 7, suggesting that risk propensity mediated the relationship between risk outcome history and risk perception, was also tested using stepwise regression. The direct effects of outcome history explained a significant portion of the variance in risk perception (R2 = .14, p < .05), and the change in R2 when propensity was added to the equation was significant (AR2 = .19, p < .01). Results of step 1 showed that outcome history was negatively related to risk perception (P = -.37, p < .05). When risk propensity was added to the equation in step 2, the effect of outcome history was no longer significant (p = -.21, n.s.), and the risk propensity effect was significant (P = -.46, p < .01). In addition, the change in beta associated with outcome history was significant (AP = .16, t3 = -2.15, p < .05). Thus, Hypothesis 7 was supported. Finally, Hypothesis 8 was tested to determine if risk perception partially mediated the effects of risk propensity on risky decision making. The direct effect of propensity explained a significant portion of the variance in risk behavior (R2 = .27, p < .001), and the change in R2 when risk perception was added to the equation was significant (AR2 = .35, p < .001). Results from step 1 showed that risk propensity was positively related to decision making (p = .52, p < .001). When risk perception was added to the equation, the relationship was no longer significant (p = .15, n.s.), and risk perception was significantly related to decision making (3 = -.70, p < .001). The change in beta associated with risk propensity was significant (Ap = .47, t3 = 3.69, p < .01). Because the mediation effect was full, rather than partial, Hypothesis 8 was not supported. Summary. Taken together, the results of study 1 demonstrate that the effects of outcome history cascade from outcome history to risk propensity to risk perception and finally from risk perception to risky decisionmaking behavior. These results provide support for the role of outcome history in the mediated model of risky decision making while clarifying our understanding of the path through which these effects occur. STUDY 2 Study 2 was designed to test the portion of the model relating to the on the relationships between problem framing, framing effect-focusing risk perception, and risky decision making. Two direct-effect hypotheses and one mediating hypothesis were tested: Hypothesis 2, positing a positive relationship between problem framing and risk perception, Hypothesis 5, positing a negative relationship between risk perception and risky decision making, and Hypothesis 9, addressing the expectation of the mediating role of risk perception in the relationship between framing and risky decision making.

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Methods Subjects. Sixty-three students in an undergraduate introductory organizational behavior class participated in the study. Subjects were on average 20.1 years old (range = 18-26 years) and averaged 4.2 years of work experience (range = 0-9 years). Seventy-one percent of the subjects were men. Procedures and stimulus materials. The general procedure for study 2 was similar to that described for study 1. Subjects received a packet containing the Carter Racing scenario, the manipulation of problem framing, and a series of questions designed to assess their decisions, their perceptions of the risk in the situation, and a problem-framing manipulation check. Variables Problem framing. All subjects were given an identical description of the decision-making situation. This three-page description included information about both potential gains and losses. Problem framing was manipulated after they had read the case and before they read the first question of the questionnaire. A randomly assigned half of the subjects read a framing paragraph that selectively drew upon information from the case to highlight the potential for losses, and the other half read a framing paragraph that highlighted the potential for gains. Subjects in the negatively framed condition (domain of losses) read: As Pat Carter,you face a tough decision, because it involves trade-offs. If you race, you have a 29% chance of blowing an engine and losing all of your support for next year, including the $500,000 oil and $300,000 tire sponsorships. If you do not race, you will lose the $300,000 tire sponsorship you had secured for next year. condition (domain of gains) Participants in the positively-framed read: As Pat Carter,you face a tough decision, because it involves trade-offs. If you race, you have a 42% chance of finishing in the top 5 and winning the $300,000 tire sponsorship plus the price money. If you do not race, you will be able to secure the $500,000 oil sponsorship for the next season. A three-item framing manipulation check was employed (a = .70) that assessed the degree to which subjects focused on the opportunities (rather than the threats) inherent in the situation. Items included the following: "Future opportunities were key, even though they were uncertain," "This was the biggest opportunity we ever had," and "We just had to go for ityou can't win by sitting in the pits." Subjects responded on a seven-point scale ranging from strongly disagree to strongly agree. Risk perception and risky decision-making behavior. The measures of perception of risk in the situation and risky decision making were the same as used in study 1.

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TABLE 2 2 Descriptive Statistics and t-Test Results Study

Problem-Framing Variable Risky decision making Risk perception
a

Conditiona Positive Mean 51.56 3.58 s.d. 27.10 0.84 t 3.44*** -2.99** df 61 61

Negative Mean s.d. 72.58 3.27 20.10 0.69

Negative framing, n = 31; positive framing, n = 32. **p < .01 *** p < .001

Results Manipulation check. The framing manipulation was found to be effective (F1,62 = 5.33, p < .05), with subjects in the positively framed condition reporting a significantly higher concern for opportunity (x = 5.10, s.d. = 1.01) than those in the negatively framed condition (x = 4.33, s.d. =1.56). Hypothesis tests. Results supported Hypotheses 2 and 5 and partially supported Hypothesis 9. First, as shown in Table 2, problem framing and risk perception were significantly related, as predicted in Hypothesis 2 (t61
=-2.99, p < .01). Second, risk perception

negatively correlated (r62 = -.59, p < .001), supporting Hypothesis 5. Finally, results of a regression analysis showed that the direct effects of framing explained a significant portion of the variance in decision making (R2 .16, p < .001), and the change in R2 when risk perception was added to the equation was significant (AR2 = .22, p < .001). In a test of Hypothesis 9, regression results showed that the effect of framing on risky behavior was significant (p = -.40, p < .001) when examined in isolation. When risk perception was added to the equation in step 2, risk perception was significantly related to risky decision making (P = -.51, p < .001), and the strength of the effect of framing was reduced (t61 = -2.98, p < .01) but remained significant (P = -.22, p < .05). These findings show that risk perception partially mediated the relationship between problem framing and risky decision-making behavior. Therefore, Hypothesis 9, positing full mediation, was not supported. Summary. The results of study 2 suggest that problem framing has both a direct and an indirect effect on risky decision-making behavior. In general, these results lend support for the mediated model of risky decision making and clarify our understanding of the causal path through which these influences occur. DISCUSSION AND CONCLUSION The two studies reported here allowed us to test key portions of the Sitkin-Pablo model. As the results summarized in Figure 2 show, all but

and risky decision

making were

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FIGURE 2 Revised Model of the Determinants of Risky Decision-Making Behavior Based on Combined Results of Studies 1 and 2a
Outcome History + (Si) Risk Propensity Propensity (S) Risky DecisionMaking Behavior (S1,S2)

I T.* Problem u 1. Framing

+ (2) (S2)

^r

Risk Perception Perception

(S2) are shown, with the sign of the relationship indicated aOnly significant relationships along each path. Studies from which each result was derived are indicated in parentheses (S1 for study 1 and S2 for study 2). The strength of the results is indicated by the number of plus or minus signs shown; "+" or "-" indicates significance of p < .05 or greater, whereas "++" or "--" indicates significance of p < .01 or greater.

one of the causal steps hypothesized in the model received support. Our results provide support for the inclusion of risk perception and risk propensity as mediators of effects on risky decision-making behavior. In both studies reported here, risk propensity and risk perception were found to significantly reduce the relationships between the antecedent variables and risky decision making. In study 1, the relationship between outcome history and decision making was mediated by risk propensity and risk perception. In study 2, risk perception was found to substantially mediate the relationship between problem framing and decision making, although the results also indicated that a direct effect of problem framing on risky decision-making behavior remained. Finally, risk propensity effects on risky decision making were found to be mediated by perceptions of risk in study 1. Thus, our results provide preliminary support for the mediating approach and challenge the direct effects model underlying most previous research on risk behavior. Limitations and Future Research We view the results reported here to be but an initial test of key elements in a much broader model. Two limitations of the studies reported here highlight opportunities for future research. Omitted variables. In the future, scholars should begin to examine the effects of other variables that are of potential relevance to risk behavior. For example, as we noted at the beginning of the article, we have only examined a subset of the variables posited by Sitkin and Pablo (1992) as affecting risk behavior, and future studies should begin to examine the other variables they identified, such as an organization's cultural orientation

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toward risk, role models provided by organizational leaders, reward systems, and individuals' risk preferences. In addition, a number of other variables could be fruitfully integrated into future research using the general approach taken here. For example, although demographic variables did not affect our results, researchers have identified important risk-related differences based on gender (Arch, 1993) and age (e.g., Hambrick & Mason, 1984; MacCrimmon & Wehrung, 1990). In addition, experience has been found to influence risk behavior and learning from risk taking (cf. Levitt & March, 1988; Osborn & Jackson, 1988). In terms of future treatments of experience, researchers could draw upon work on self-efficacy (Bandura, 1977) or learned helplessness (Seligman, 1975) to theorize about how people's past successes and failures influence their propensity to take risks. Experience of study sample. The range of experiential history across the potentially relevant risk domains raised by the stimulus material was limited in our samples. Although the study design and its use of experimentally manipulated variables did not rely upon the personal decisionmaking experience of subjects, nonetheless their limited personal experience is a potential limitation to be acknowledged and should be addressed in future work, which could use more experienced decision makers as subjects. Theoretical Extensions and Implications Importance of risk propensity. Sitkin and Pablo (1992) argued that the perceived value of risk propensity as a construct has waned because of its poor conceptualization and measurement. The results of our empirical studies support their contention that rumors of the demise of risk propensity were premature. The finding that risk propensity was negatively associated with risk perception in study 1-that the more a subject was inclined to take risks, the less risky he or she perceived the Carter Racing scenario to be-is consistent with March and Shapira's (1987) finding that risk-seeking decision makers tend to attend more to the opportunities inherent in a situation than to the threats. This finding provides additional support for the potential value of retaining the risk propensity construct in theories and empirical research. Thus, it appears that Sitkin and Pablo's (1992) conception of risk propensity as a current tendency based on cumulative historical outcomes rather than a fixed dispositional characteristic (e.g., Kogan & Wallach, 1964) has merit and should be subjected to further theoretical and empirical scrutiny. Reexamining framing effects. The finding in study 2 that problem framing is partially mediated by risk perceptions is potentially important in that it extends previous research on framing effects. Whereas a direct effects model was implied in the original formulation and supporting studies of prospect theory (Kahneman & Tversky, 1979), our results provide partial support for Sitkin and Pablo's (1992) reformulation. This sup-

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port suggests that future work should reexamine prospect theory studies by independently varying framing and perceptions. Traditionally, framing effects have been tested in very controlled settings using simple scenarios, with the manipulation of gains and losses made very salient to decision makers. These research designs have resulted in much stronger framing effects than emerged from study 2. It is possible that the complexity of the task materials dampened the salience of the manipulation. Decision makers read a lengthy scenario and a subtle manipulation and then responded to a large set of items designed to assess multiple constructs. The large amount of information to which the decision makers had to attend may have weakened the framing effect. Thus, our findings in study 2 might help to identify a potential boundary condition for framing effects while supporting the broad finding in the literature that they are robust. Theoretical importance of considering decision maker experience. Future research could examine the role of experience more directly through longitudinal designs that track changes in propensity under conditions in which experienced outcome histories are systematically varied through sampling rather than through experimental manipulation of conditions. For example, future research could study populations of decision makers whose experiential base is more varied, such as acquisition specar cialists, mediators, venture capitalists, or-using our stimulus-race team members. It is important to highlight that such an extension is not merely methodological. It is also theoretically important in that it raises the question of whether different models apply to experienced decision makers and to inexperienced ones. For example, it is possible that risk propensity is less likely to mediate outcome history when decision makers do not have sufficient personal experience to have developed stable outcome histories or propensities with respect to a specific decision being made. Studies are often criticized, especially in the organizational literature, for studying inexperienced student decision makers, but we think this criticism can be misplaced if made indiscriminately. Every decision maker has had to start somewhere; thus, research on first-time decision makers is indeed valid so long as the researchers are clear about the population to which they can generalize. In addition, if the findings of other scholars are correct in suggesting that experience (among other attributes) may not generalize from one domain to another, even experienced decision makers may frequently encounter decision situations in which they are novices. Thus, our findings may well be far more generalizable than a narrow view of decision maker experience might suggest. To determine whether our results apply to all decision makers or only to those who are relatively low in domain-specific experience will require additional empirical study. Notwithstanding the limitations of this study, our findings do provide a starting point from which to propose a reformulation of the Sitkin-Pablo model of the determinants of risky decision-making behavior.

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Implications

for Practicing Managers

The findings reported in this article have several implications for practicing managers that can be extended in future work as well. The finding that the mediator variables are strong predictors of risky decision-making behavior, if supported in future studies under different contexts, provides an opportunity to more efficiently predict individual risk behavior. Specifically, if two mediator variables continue to show strong predictive power, the large number of antecedent variables used in today's studies could be supplanted by a much more parsimonious approach.4 Risk perception. The studies reported here provide clear support for the importance of risk perception as a crucial influence on individual risktaking behavior, an influence that mediates the effects of at least several other influences on risk behavior. This work implies that managers who wish to either increase or decrease the risks taken by subordinates or others can most effectively target their efforts toward problem framing or other determinants of risk perception. The applications for such a finding are quite broad. For example, Pablo, Sitkin, and Jemison (in press) recently examined how risk perception could affect the ways that managers approach the inherent risks involved in acquiring and integrating another firm. Other applications include the willingness to openly disclose sensitive information, such as information about safety (Douglas & Wildavsky,
1982; Osborn & Jackson, 1988; Tamuz & Sitkin, 1992), and the willingness

to pursue high-risk corporate innovations (Van de Ven & Polley, 1992). Risk propensity. An area to be explored further in the future concerns our operational definition of risk propensity as involving a cumulative tendency to take or avoid risks. This finding and perspective have two potential implications for practice. First it suggests that risk taking can be more easily influenced early in a decision maker's "domain career"when he or she has had little experience in that domain-as risk propensity will become more stable and difficult to influence as time passes. This implication fits quite nicely with the more general point made by socialization theorists (e.g., Van Maanen & Schein, 1979) about the relative malleability of inexperienced and experienced employees. Second, it suggests that even once an individual's risk orientation is fixed, individual or group decision makers can be purposively selected on the basis of their outcome histories and risk propensity to influence the likelihood that more or less risky decisions will be made. Domain specificity. Although these studies did not directly address the question of domain specificity, a natural extension of this work would be to focus on the conditions under which past experiences in taking risks in one domain are generalized and thus affect perceptions and propensities to undertake risks in another domain. Of even more practical value to managers is the implication that issue definition (e.g., Dutton & Jackson,
4 We would like to thank George Huber for pointing out this implication of our results.

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1987) may prove to be an effective way to influence what domain a decision is seen as relating to and thus may provide the opportunity for significant points of influence on a decision maker's risk propensity, perceptions, and behavior. Conclusion This article presented the results of a first test of the Sitkin and Pablo model of the determinants of risk behavior and provided support for the portions of the model tested, in particular for the general notion that a mediated model of risk behavior is more powerful than one in which the direct effects of a large number of individual antecedent variables are examined individually. Not only did the studies reported here provide general support for a mediated model in which risk perception and risk propensity are key mediators, but they also clarified some of the likely causal relationships involved. Thus, this article provides a conceptual and empirical springboard for future work on other potentially important determinants of risky decision-making behavior. REFERENCES
Arch, E. 1993. Risk taking: A motivational basis for sex differences. Psychological Reports, 73: 3-11. Bandura, A. 1977. Self-efficacy: Toward a unifying theory of behavioral change. Psychological Bulletin, 84: 191-215. Baird, I. S., & Thomas, H. 1985. Toward a contingency model of strategic risk taking. Academy of Management Review, 10: 230-243. Baron, R. M., & Kenney, D. A. 1986. The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51: 1173-1182. Bettman, J. R. 1973. Perceived risk and its components: A model and empirical test. Journal of Market Research, 10: 184-190. Brittain, J., & Sitkin, S. B. 1989. Facts, figures, and organizational decisions: Carter racing and quantitative analysis in the organizational behavior classroom. Organizational Behavior Teaching Review, 14(1): 62-81. Brockhaus, R. H. 1980. Risk-taking propensity of entrepreneurs. Academy of Management Journal, 23: 509-520. Corsini, R. J., & Osaki, B. D. (Eds.). 1984. Encyclopedia of psychology, vol. 3. New York: Wiley. Douglas, M., & Wildavsky, A. 1982. Risk and culture. Berkeley: University of California Press. Dutton, J E., & Jackson, S. E. 1987. Categorizing strategic issues: Links to organizational action. Academy of Management Review, 11: 76-90. Dyer, J. S., & Sarin, R. K. 1982. Relative risk aversion. Management Science, 28: 875-886. Fischhoff, B., Lichtenstein, S., Slovic, P., Derby, S. L., & Keeney, R. L. 1981. Acceptable risk. Cambridge, England: Cambridge University Press. Goldenson, R. M. (Ed.). 1984. Longman dictionary of psychology and psychiatry. New York: Longman. Hambrick, D. C., & Mason, P. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9: 193-206. Jackson, S. E., & Dutton, J. E. 1988. Discerning threats and opportunities. Administrative Science Quarterly, 33: 370-387. Kahneman, D., & Tversky, A. 1979. Prospect theory: An analysis of decision under risk. Econometrica, 47: 263-291.

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Kogan, N., & Wallach, M. A. 1964. Risk taking: A study in cognition and personality. New York: Holt, Rinehart & Winston. Levitt, B., & March, J. G. 1988. Organizational learning. In W. R. Scott & J. Blake (Eds.), Annual review of sociology, 14: 319-340. Palo Alto, CA: Annual Reviews. MacCrimmon, K. R., & Wehrung, D. A. 1985. A portfolio of risk measures. Theory and Decision, 19: 1-29. MacCrimmon, K. R., & Wehrung, D. A. 1986a. Taking risks: The management of uncertainty. New York: Free Press. MacCrimmon, K. R., & Wehrung, D. A. 1986b. Assessing risk propensity. In L. Daboni, A. Montesano, & M. Lines (Eds.), Recent developments in the foundations of utility and risk theory: 291-309. Dordrecht: D. Reidel Press. MacCrimmon, K. R., & Wehrung, D. A. 1990. Characteristics of risk taking executives. Management Science, 36: 422-435. March, J. G., & Shapira, Z. 1987. Managerial perspectives on risk and risk-taking. Management Science, 33: 1404-1418. Neale, M. A., Bazerman, M. H., Northcraft, G. B., & Alperson, C. 1986. "Choice shift" effects in group decisions: A decision bias perspective. International Journal of Small Group Research, March: 33-42. Osborn, R. N., & Jackson, D. H. 1988. Leaders, riverboat gamblers, or purposeful unintended consequences in the management of complex dangerous technologies. Academy of Management Journal, 31: 924-947. Pablo, A. L., Sitkin, S. B., & Jemison, D. B. In press. The role of risk in acquisition decision making processess. Journal of Management. Rowe, W. D. 1977. An anatomy of risk. New York: Wiley. Schneider, S. L., & Lopes, L. L. 1986. Reflection in preferences under risk: Who and when may suggest why. Journal of Experimental Psychology: Human Perception and Performance, 12: 535-548. Schoemaker, P. 1990. Are risk attitudes related across domains and response modes? Management Science, 36: 1451-1463. Seligman, M. E. P. 1975. Helplessness. San Francisco: Freeman. Singh, J. 1986. Performance, slack, and risk taking in organizational decision making. Academy of Management Journal, 29: 562-585. Sitkin, S. B. 1992. Learning from failure: The strategy of small losses. In B. M. Staw & L. L. Cummings (Eds.), Research in organizational behavior, vol. 14: 231-266. Greenwich, CT: JAI Press. Sitkin, S. B., & Pablo, A. L. 1992. Reconceptualizing the determinants of risk behavior. Academy of Management Review, 17: 9-39. Staw, B. M., Sandelands, L. E., & Dutton, J. E. 1981. Threat-rigidity effects in organizational behavior: A multi-level analysis. Administrative Science Quarterly, 26: 501-524. Sutherland, S. (Ed.). 1989. International dictionary of psychology. New York: Continuum. and legal conTamuz, M., & Sitkin, S. B. 1992. The invisible muzzle: Organizational straints on the disclosure of information about health and safety hazards. Working paper, University of Texas School of Public Health, Houston. Thaler, R. H., &Johnson, E. J. 1990. Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Management Science, 36: 643-660. Tversky, A., & Kahneman, D. 1986. Rational choice and the framing of decisions. In R. M. Hogarth & M. W. Reder (Eds.), Rational choice: The contrast between economics and psychology: 67-94. Chicago: University of Chicago Press. Tversky, A., & Kahneman, D. 1992. Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5: 297-323. Van de Ven, A. H., & Polley, D. 1992. Learning while innovating. Organization Science, 3(1): 92-116. Van Maanen, J., & Schein, E. H. 1979. Toward a theory of organization socialization. In B.

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APPENDIX Scale Items and Reliabilities

Risky Decision-Making Behavior Subjects in studies 1 and 2 were asked: "If you were Pat Carter, what is the probability that you would decide to race/not race (where 0% = definitely not race and 100% = definitely race)?" Choices were provided in increments of 10 percent. Risk Perception This four-item scale (a = .75) was used in studies 1 and 2. The first three items reflected responses to the following question: "How would you characterize the decision faced by Pat Carter?" (1) 1 = significant opportunity to 7 = significant threat; (2) 1 = potential for loss to 7 = potential for gain (reversescored); (3) 1 = positive situation to 7 = negative situation. The fourth item was a response to the following question: "What is the likelihood of the Carter Racing Team succeeding at the Pocono race?" (4) 1 = very unlikely to 7 = very likely (reverse-scored). Risk Propensity This five-item scale (a = .86) was used in study 1 and captured responses to the following question: "As Pat Carter you face a decision that affects your organization's financial future. Given this circumstance, how would you rate your tendency to. . . (1) choose more or less risky alternatives based on the assessment of others on whom you must rely, (2) choose more or less risky alternatives which rely upon analyses high in technical complexity, (3) choose more or less risky alternatives which could have a major impact on the strategic direction of your organization, (4) initiate a strategic corporate action which has the potential to backfire, (5) support a decision when I was aware that relevant analyses were done while missing several pieces of information." Sim B Sitkin is an associate professor of management at the Fuqua School of Business, Duke University. He received he Ph.D. degree in organizational behavior from the Graduate School of Business, Stanford University. His research examines the processes by which organizations and their members become more or less capable of change and innovation. More specifically, his work focuses on the effect of formal and informal organizational control systems on risk taking, accountability, trust, learning, and innovation. Laurie R. Weingart is an associate professor of industrial administration in the Graduate School of Industrial Administration at Carnegie Mellon University. She received her Ph.D. degree in organization behavior from Northwestern University. Her research interests include individual and group decision-making processes, primarily focusing on negotiation tactical behavior.