HOW BELIEVING IN OURSELVES INCREASES RISK-TAKING - PERCEIVED SELF-EFFICACY AND OPPORTUNITY RECOGNITION

What effect does positive and negative feedback about past risk taking have on the future risk taking of decision makers? The results of an experimental study show that subjects who are led to believe they ate very competent at decision making see mote opportunities in a risky ch oice and take more risks. Those who are led to believe they are not ve ry competent see mote threats and take fewer risks. The feelings of se lf-competence and self-confidence on one task did not generalize to a similar task. Perception of opportunities was unexpectedly not related to the perception of threats. As executives bring their personal perc eptual biases to firm decision making, out results identify a serious built-in bias in SWOT analysis (the analysis of firms' strengths and w eaknesses as related to potential opportunities and threats). Executiv es who believe that they and their firm are very competent will take m ore risks and vice versa. Out results also provide evidence that the p erceived likelihood of an event depends on whether the event is a loss or a gain. Human decision making is subject to the general bias that outcome expectations are not independent of outcome valuations.