Betting the farm and playing it safe? Hyper-core self-evaluation in decisions when managers are winning and losing

Andreas Hönl,Torsten Wulf,Philip Meissner

doi:10.1007/s40685-020-00132-y

Andreas Hönl, Torsten Wulf + Show 1 more

Open Access

https://doi.org/10.1007/s40685-020-00132-y

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Abstract

Core self-evaluation summarizes a decision maker’s self-worth. This key personality trait has been shown to lead to extreme performance consequences of either winning or losing big. We suggest that these extreme performance outcomes may partly rest in how core self-evaluation affects executive’s perception and evaluation of risk in choices under uncertainty. We conducted a choice experiment building on the original prospect theory experiments with 97 executives, in which we measured the effect of core self-evaluation on risk behavior. As a robustness test, we replicated and validated our findings with a larger sample of 111 executives. Building on the tenets of prospect theory, we show that decision makers with high levels of core self-evaluation are less loss averse. Surprisingly, this effect differs depending on whether gains or losses are highlighted in the decision. For gains, higher levels of core self-evaluation are associated with behaviors that are closer to risk neutrality. For losses, however, we find that higher levels of core self-evaluation further enhance the risk-seeking behavior of decision makers. These findings contribute towards understanding the effects of core self-evaluation in the work environment as well as in the decision process and provide an additional lens for studying how the personality of executives affects choices under uncertainty.

Highlights

Behavioral research in the management domain has embraced the concept of core self-evaluation (CSE) that captures executives’ self-esteem, generalized selfefficacy, neuroticism, and locus of control as four core traits describing their individual personality structure (Hiller and Hambrick 2005; Judge et al 2003; Simsek et al 2010)
Core self-evaluation summarizes a decision maker’s self-worth. This key personality trait has been shown to lead to extreme performance consequences of either winning or losing big. We suggest that these extreme performance outcomes may partly rest in how core self-evaluation affects executive’s perception and evaluation of risk in choices under uncertainty
Building on the tenets of prospect theory, we show that decision makers with high levels of core self-evaluation are less loss averse

Summary

Introduction

Behavioral research in the management domain has embraced the concept of core self-evaluation (CSE) that captures executives’ self-esteem, generalized selfefficacy, neuroticism, and locus of control as four core traits describing their individual personality structure (Hiller and Hambrick 2005; Judge et al 2003; Simsek et al 2010). While most studies in the field have argued for a positive effect of CSE in the organization (Erez and Judge 2001; Judge and Bono 2001; Tierney and Farmer 2002), other researchers suggest that very high levels of CSE, or so called hyperCSE, might reduce decision quality by inducing overconfidence and hubris, which is a state of extreme confidence triggered by internal and external stimuli (Hayward and Hambrick 1997) Such hyper-CSE has been linked to extreme performance outcomes of either winning or losing big (Hayward and Hambrick 1997; Hiller and Hambrick 2005). The latter effect has been famously conceptualized in Tversky’s and Kahneman’s prospect theory (Kahneman and Tversky 1979; Tversky and Kahneman 1992), which has emerged as the dominant theory for describing choices under uncertainty

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