Research: Powerful people take more risks

BERKELEY
September 14, 2006 8:52am

Powerful people view life through rose-colored glasses, with their more optimistic outlook ultimately leading them to engage in riskier behavior, according to Cameron Anderson, an associate professor at the University of California, Berkeley Haas School of Business.

In five separate studies outlined in an article titled "Power, Optimism, and Risk-Taking" in the latest issue of the European Journal of Social Psychology Mr. Anderson and co-author Adam Galinsky of Northwestern University demonstrate how a sense of power leads individuals to risk-seeking behavior.

The researchers say their findings apply to a range of powerful individuals, from heads of state to CEOs to prominent community leaders.

In the business world, Messrs. Anderson and Galinsky note that risky behavior can be beneficial, helping individuals maintain or even increase their power. By engaging in risky behavior, the powerful may take advantage of high upside opportunities that others avoid, the authors write.

But the business world also is littered with examples of powerful executives taking risks that ultimately hurt them, whether it's the latest scandal over backdating stock options or an unsuccessful merger or acquisition, they also note.

"Our work is shedding light on the psychological mechanisms for those sometimes infamous blunders," says Mr. Anderson.

He says that when he and Mr. Galinsky began their research, former President Bill Clinton was embroiled in the Monica Lewinsky scandal. "It's a good example of someone who was feeling so powerful that he was totally blind to the possibility that he was going to get caught," says Mr. Anderson, a member of the Haas Organizational Behavior and Industrial Relations Group.

Mr. Anderson advises that business leaders should be aware of this bias toward riskier behavior and protect against it by more carefully weighing the risks and benefits of their actions and decisions.

Experts have speculated one's prior success or sense of power leads to disastrous mistakes, but until now there's been little research that establishes such a link, the Berkeley professor notes.

In fact, some psychologists have argued the opposite, suggesting that low-power people are willing to do anything to get out of their disadvantaged situation with less to lose by risky behavior. Conversely, those in power might act more conservatively because they have more to lose, some have argued.

However, the cumulative results from five experiments by Messrs. Anderson and Galinsky contradict that theory and instead find a link between power and risky behavior, they say.