Risk Preferences of Management Generations

University essay from Lunds universitet/Företagsekonomiska institutionen

Abstract: Purpose: The purpose of this paper is to examine the risk preferences of current and future management generations and its implications for strategic management. Methodology: A quantitative research strategy has been chosen in order to fulfil the purpose of this study. The data collection has been gathered primarily through surveys and complementing secondary data. Subsequently, the gathered data has been analysed applying a deductive approach by using concepts of pattern matching and explanation building based on existing macroeconomic trends and literature. Theoretical perspectives: The theoretical foundation of this study is based on Kahneman and Tversky’s (1979) Prospect Theory. The theory postulates that individuals evaluate choices between alternative prospects based on perceived gains or losses in respect to a certain reference point, rather than to net asset levels. The framework is further set into context to the concept of risk. Empirical results: The empirical results presented originate from 155 surveys completed by people of different age, gender, educational background and managerial experience. Conclusions: We discover that male millennials are significantly more risk tolerant than any other generation-gender combination. Thus, our results suggest that not only age but also other characteristics such as gender, education and experience are attributable to certain risk preference tendencies. Our empirical results serve as the basis for the composition of top management teams and for systematically influencing managerial risk behaviour in order to effectively managing uncertainties and generating competitive advantages as a firm.

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