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The Determinants of Managerial Decisions Under Risk

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Author Info
Martin G. Kocher ()
Ganna Pogrebna ()
Matthias Sutter ()

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Abstract

In hierarchical organizations the role of a team leader often requires making decisions which do not necessarily coincide with the majority opinion of the team. However, these decisions are final and binding for all team members. We study experimentally why, and under which conditions, leaders resort to such decisions. In our experiment, teams are presented with several paired lottery choices. They decide by majority voting which lottery from the lottery pair they prefer to be played out. After all members of the team have made their choices, the team leader is informed about the outcome of the vote and has an opportunity either to confirm or to alter the majority decision. We find that leaders overrule their teams in 35% of cases and such decisions are primarily driven by divergent preferences of leaders and the other team members. Male, younger and more risk seeking (as opposed to female, older and more risk averse) leaders overrule decisions of ordinary team members more often. We discuss the implications of our findings for the management of organizations.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-04.

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Handle: RePEc:inn:wpaper:2008-04

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Related research
Keywords: leadership; risk attitude; managerial decisions; collective choice; choice under risk.;

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Guth, Werner & Levati, M. Vittoria & Sutter, Matthias & van der Heijden, Eline, 2007. "Leading by example with and without exclusion power in voluntary contribution experiments," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1023-1042, June. [Downloadable!] (restricted)
    Other versions:
  2. Milton Harris & Artur Raviv, 1999. "Organization Design," CRSP working papers 499, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
  3. Martin G. Kocher & Matthias Sutter, 2004. "The Decision Maker Matters: Individual versus Group Behaviour in Experimental Beauty-Contest Games," Papers on Strategic Interaction 2004-09, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  4. Jan Potters & Martin Sefton & Lise Vesterlund, 2007. "Leading-by-example and signaling in voluntary contribution games: an experimental study," Economic Theory, Springer, vol. 33(1), pages 169-182, October. [Downloadable!] (restricted)
  5. Potters, Jan & Sefton, Martin & Vesterlund, Lise, 2005. "After you--endogenous sequencing in voluntary contribution games," Journal of Public Economics, Elsevier, vol. 89(8), pages 1399-1419, August. [Downloadable!] (restricted)
    Other versions:
  6. M. Vittoria Levati & Matthias Sutter & Eline van der Heijden, 2005. "Leading by example in a public goods experiment with heterogeneity and incomplete information," Papers on Strategic Interaction 2005-17, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  7. Kugler, Tamar & Bornstein, Gary & Kocher, Martin G. & Sutter, Matthias, 2007. "Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy," Journal of Economic Psychology, Elsevier, vol. 28(6), pages 646-657, December. [Downloadable!] (restricted)
    Other versions:
  8. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November. [Downloadable!] (restricted)
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    Other versions:
  17. Mana Komai & Mark Stegeman & Benjamin E. Hermalin, 2007. "Leadership and Information," American Economic Review, American Economic Association, vol. 97(3), pages 944-947, June. [Downloadable!]
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    Other versions:
  19. David J. Cooper & John H. Kagel, 2005. "Are Two Heads Better Than One? Team versus Individual Play in Signaling Games," American Economic Review, American Economic Association, vol. 95(3), pages 477-509, June. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jesus Crespo Cuaresma & Andreas Breitenfellner, . "Crude Oil Prices and the Euro-Dollar Exchange Rate: A Forecasting Exercise," Working Papers 2008-08, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
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