Unlocking decision risk: the impact of self-regulatory focus on risky decision making

© 2012 Dr. Phakdey ThanWithin the organisational context, employees as well as managers are confronted with choices that are underpinned by risks. Although risk-taking is the essence of organisational success, excessive risk-taking may have dire consequences on both the individual and the organisation. In the present research I sought to attain a better understanding on the phenomenon of decision risk by examining how individual differences in motivational orientation, that is, self-regulatory focus shapes the underlying risk mechanisms of (1) perceived/subjective utility of gains and losses, and (2) perceived likelihood judgement of gains and losses. Furthermore, to gain a more holistic understanding of decision risk, the present research also examined the dynamic nature of individual risk preference by considering the importance of prior decision outcomes. To this end, three studies were conducted utilising diverse samples and methodologies. In Study 1, utilising 318 university students, results provided partial support for the hypothesised predictions. Specifically, chronic promotion focus was found to be positively correlated to subjective utility of gains and perceived likelihood judgement of gains. Conversely, chronic prevention focus demonstrated a positive relationship with subjective utility of losses (with limited support) and perceived likelihood judgement of losses. Collectively, these findings highlighted the systematic biases in people’s subjective utility and perceived likelihood judgements. In Study 2, 439 managers from across Australia completed an online case study on Carter racing, which was designed to capture individuals’ risky decision making. As hypothesised, results revealed that the relationship between promotion focus and risk preference was indirectly influenced by subjective utility of gains and perceived likelihood judgement of gains. These findings provided further insight into our understanding of decision risk. In Study 3, 302 university students participated in the study. Utilising a computerised behaviour risky decision making task (i.e. the Columbia Card Task), analyses confirmed that promotion focus was positively related to risky decision making, while prevention focus was inversely related to risky decision making. Moreover, such risk pattern was found to be indirectly influenced by subjective utility of gains (replicating the finding of Study 2) and subjective utility of losses, respectively. The consideration of decision outcomes demonstrated crucial boundary conditions through changes in individual risk preference. Specifically, in the domain of losses, prevention focus was found to be positively correlated to risky decision making. Such finding outlined the intricate and dynamic nature of individual risk preference. Overall, the research findings underscored the significance of regulatory focus in explaining individual risk preference. Theoretically, the current thesis exposed a level of complexity in individual reasoning that is unaccounted in existing studies. From a practical perspective, by knowing who, when and why a risky alternative is preferred, managers can better monitor employees’ decision making and mitigate any potential harm to the organisation