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What is risk to managers?

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  • Christoffersen, Jeppe
  • Holzmeister, Felix
  • Plenborg, Thomas

Abstract

In an online experiment with a sample of 4287 managers from small- and medium-sized enterprises in Denmark, we present participants with scenario-dependent outcomes of a hypothetical investment prospect and elicit their perception of risk and their perception of the investment’s attractiveness (as a proxy for investment preferences). The experimental data is merged with a set of background variables on the company from the Danish registry which allows controlling for firm-specific effects. We find that risk perception is driven by the likelihood and the return associated with the worst-case scenario as well as the size of the required investment. Furthermore, we provide evidence that managers’ perception of the project’s attractiveness is significantly associated with their individual-level risk preferences and the interaction effect between risk preferences and risk perception. This implies that not only the characteristics of the different scenarios but also individuals’ risk preferences play an important role when assessing the attractiveness of a business opportunity.

Suggested Citation

  • Christoffersen, Jeppe & Holzmeister, Felix & Plenborg, Thomas, 2023. "What is risk to managers?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:beexfi:v:40:y:2023:i:c:s2214635023000552
    DOI: 10.1016/j.jbef.2023.100841
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    2. Silvia Angerer & Jana Bolvashenkova & Daniela Glätzle-Rützler & Philipp Lergetporer & Matthias Sutter, 2021. "Children’s patience and school-track choices several years later: Linking experimental and field data," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2021_12, Max Planck Institute for Research on Collective Goods.
    3. Daniel Gründler & Eric Mayer & Johann Scharler, 2023. "Monetary Policy Announcements, Information Shocks, and Exchange Rate Dynamics," Open Economies Review, Springer, vol. 34(2), pages 341-369, April.

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    More about this item

    Keywords

    Risk perception; Risk preferences; Investment decision; Managerial decision-making;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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