Risk and Uncertainty: Strategy and Decision-Making


Risk and strategic decision-making in organizations

Oil rig "Deepwater Horizon's" sinking, the global financial crisis along with its network effects, global warming and the resulting changes in the environment: just a few examples for the huge variety of technical, economic and social risks associated with corporate management today. Hitherto, risk analysis and risk management have been handled isolatedly within the respective disciplines - not integrating technical, economic and social perspectives. However, risk is a very complex phenomenon not allowing to be examined from a discrete discipline's point of view and by the application of elementary methods only. Instead, its analysis and evaluation require an interdisciplinary approach. A corporation's management has to make integrated risk-related decisions on a base that also reflects technical, economic and social consequences of such strategic decisions. The goal of this project is the conceptualizing of a model for economy's and policy's decision makers easing the handling of complex risk decisions and also showing up direct and indirect outcomes and consequences of risk management decisions from a technical, economical and social point of view. The realization of this project will require an intense research of literature (which is interdisciplinary to some extent) in the field of risk identification, analysis, modeling and management, both regarding established models/concepts as well as recent research results. Recent developments in research have to be taken into account as e.g., cognitive biases in risk evaluation; prospect theory (loss aversion); risk communication and framing effects of risk decisions; systemic and network effects of risks (system relevant firms); and behavioral aspects.

Do risk attitudes differ within the group of entrepreneurs?

The notion of risk and entrepreneurship has been widely discussed in the entrepreneurship lit-erature. The decision to start a business is a decision that involves risk and requires a risk-taking attitude. Most studies have compared entrepreneurs with non-entrepreneurs such as managers or bankers. However, little research exists on the risk attitudes of different types of entrepreneurs. This study aims to fill this gap. Our particular focus is on the entrepreneurs’ motivations to start their business. The results show that opportunity entrepreneurs are more willing to take risks than necessity entrepreneurs. In addition, entrepreneurs who are motivated by creativity are more risk-tolerant than other entrepreneurs.  

The neural basis of risk and ambiguity

Risk and ambiguity are important concepts in theories of managerial and entrepreneurial behavior. Whereas risk is defined as a pure gamble with known probabilities and outcomes (e.g., a lottery ticket), ambiguity is defined as a compound case of risks in which more than one outcome is possible and the probability associated with each outcome is unknown. It is often assumed that managers and entrepreneurs have a superior ability to deal with decisions under risk and with ambiguous information. Previous research has often used simple risk as proxy to measure entrepreneurial decisions under risk, transposed the answers to entrepreneurial decision-making in response to ambiguity, thus combining and treating risk and ambiguity parameters as one. We argue that it is necessary to differentiate between the two. The project aims at extending the knowledge about brain structures involved in decision-making under risk and ambiguity. Functional magnetic resonance imaging (fMRI) is used to record neural activity while subjects engage in decision making tasks involving risk and ambiguity.

Risk and entrepreneurship

Today’s literature pays a lot of attention to entrepreneurship without handling the risks start-ups are facing whilst moving into self-employment or during the first years in a major way. Furthermore, there are only few suggestions how to reduce these risks. This paper aims to fill this gap. First, we provide an overview of the literature concerning both entrepreneurship and risk. Second, we compiled a qualitative questionnaire in order to identify entrepreneurial risk factors and means to reduce them. As experts to be interviewed, we selected a group of entrepreneurs from different industries. The answers given are systematically subdivided into several categories, e.g. risk identification and risk management. We provide implications for both entrepreneurs and researchers. 

Project team

Prof. Dr. Isabell M. Welpe
(TUM School of Management, Chair for Strategy and Organization)

PD Dr. Johannes Hewig

(Friedrich-Schiller-University Jena, School of Social and Behavioral Sciences)

Angela Stanton, PhD.

(Claremont Graduate University, Center for Neuroeconomics Studies)

Prof. Dr. Wolfgang H. R. Miltner

(Friedrich-Schiller-University Jena, School of Social and Behavioral Sciences)

Dipl. Ing. Holger Hecht

(Friedrich-Schiller-University Jena, School of Social and Behavioral Sciences)