In these trying and tumultuous times, uncertainty appears to accompany every decision we make. And uncertain decisions are rife with risk. We just don’t know how it is going to turn out–good or bad. Recent research offers some insight into the risk tolerance of leaders based on their core self-evaluation–in other words, a leader’s self-perception. A core self-evaluation is a combination four personality traits: a) self-esteem, b) generalized self-efficacy (i.e., your belief in your ability to accomplish certain tasks), c) emotional stability, and d) locus of control (i.e., your belief in your ability to influence events and people).
A study of over 200 executives from 9 different industries analyzed the influence of an executive’s core self-evaluation on their risk behavior and tolerance. It wasn’t surprising to find that those with high levels of self-evaluation were less risk adverse. It was, however, surprising that this influence differed depending on whether it was gains or losses that were determined by the decision. If there was something to be gained by making a decision or taking an action, leaders with high levels of self-evaluation made better decisions because they were more risk neutral. That is, they were willing to take a moderate level of risk. This most often led to superior performances. In contrast, however, when these same leaders were faced with a continuing series of losses, they were likely to take greater risks in their decisions and actions. This most often negatively affected personal and organizational performance. Based on the research, it appears leaders with high levels of core self-evaluation expect to be successful, and when that happens they are willing to take reasonable risks and gain superior outcomes. However, when they are not successful, they elevate their risk taking–often with disastrous results. According to Senator Robert Kennedy “only those who dare to fail greatly can ever achieve greatly.” While that may be true at times, it seems that more often than not those who dare to fail greatly do indeed fail greatly.
Hönl, A., Meissner, P., & Wulf, T. (2020). Betting the farm and playing it safe? Hyper-core self-evaluation in decisions when managers are winning and losing. Business Research, 13(3), 1293–1316.