Integrating Behavioural and Economic Concepts of Risk into Strategic Management: The Twain Shall Meet

Long Range Planning, Vol. 36, pp. 61-79, 2003

19 Pages Posted: 7 Nov 2010

See all articles by Sayan Chatterjee

Sayan Chatterjee

Case Western Reserve University - Weatherhead School of Management

Robert M. Wiseman

Michigan State University - Department of Management

Avi Fiegenbaum

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management

Cynthia E. Devers

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Date Written: 2003

Abstract

This paper develops an integrated framework of risk management and strategic competitive advantage that incorporates behavioural and economic notions of risk. The resulting model argues for the importance of risk-taking to sustainable competitive advantage and ultimately to firm performance. The model integrates framing effects of attainment discrepancy, transaction costs from implicit contracts theory and capital costs from finance theory. The proposed model suggests that continuous risk-taking by firms may help sustain competitive advantage and thus lower firm risk. This, in turn, effectively increases market returns to shareholders by ensuring earnings growth while simultaneously reducing the risk premium discount attached to a firm’s future income stream.

Keywords: risk, risk management, behavioral theory, attainment discrepancy

Suggested Citation

Chatterjee, Sayan and Wiseman, Robert M. and Fiegenbaum, Avi and Devers, Cynthia E., Integrating Behavioural and Economic Concepts of Risk into Strategic Management: The Twain Shall Meet (2003). Long Range Planning, Vol. 36, pp. 61-79, 2003. Available at SSRN: https://ssrn.com/abstract=1703608

Sayan Chatterjee

Case Western Reserve University - Weatherhead School of Management ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Robert M. Wiseman

Michigan State University - Department of Management ( email )

North Business Complex
East Lansing, MI 48824-1122
United States
517-432-3508 (Phone)

Avi Fiegenbaum

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management ( email )

Haifa 32000
Israel

Cynthia E. Devers (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

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