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ICC Advance Access published online on April 25, 2008
Industrial and Corporate Change, doi:10.1093/icc/dtn007
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© The Author 2008. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.

Organizational risk taking: adaptation versus variable risk preferences

Jerker Denrell

The observed association between performance and organizational risk taking has usually been attributed to the influence of performance on risk preferences. Here I show how a simple model of adaptation, which only assumes that organizations avoid activities with poor past performance, can explain the empirically observed U-shaped association between risk and return. The model also makes novel predictions, which are shown to be consistent with the data. The findings suggest that risk taking may be a by-product of adaptation rather than a deliberate choice motivated by variable risk preferences.


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