Better to Have Led and Lost than Never to Have Led at All? Competitive Dethronement, the Endowment Effect, and Risk Taking

49 Pages Posted: 29 Nov 2017

See all articles by Tomasz Obloj

Tomasz Obloj

HEC Paris - Strategy & Business Policy

Cédric Gutierrez

Bocconi University - Department of Management and Technology

Frank Douglas

Analysis Group, Inc.

Date Written: November 1, 2017

Abstract

In this paper, we develop a theoretical model and offer a first empirical test of how competitive dethronement affects managerial risk taking. Drawing on the mechanism of endowment effect and reference-dependent utility theory, we predict that former market leaders take more risks compared to, otherwise identical, competitors. We empirically test this prediction using two contexts allowing us to use different methods to operationalize risk. The first setting draws on field data from a two-month banking sales contest. The second, quasi-laboratory, data comes from an educational game. Consistent with model’s prediction, we find that dethronement is associated with increased risk taking but that the endowment effect leading to such response decays over time. In contrast, a mere decline in performance ranking does not have the same effect.

Suggested Citation

Obloj, Tomasz and Gutierrez, Cédric and Douglas, Frank, Better to Have Led and Lost than Never to Have Led at All? Competitive Dethronement, the Endowment Effect, and Risk Taking (November 1, 2017). HEC Paris Research Paper No. SPE-2017-1240. Available at SSRN: https://ssrn.com/abstract=3078017 or http://dx.doi.org/10.2139/ssrn.3078017

Tomasz Obloj (Contact Author)

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Cédric Gutierrez

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Frank Douglas

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

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