Success Visibility and the Evolution of Risk-Taking Cultures
When do cultures of excessive risk-taking take hold of groups? Much research has been dedicated to understand why individual economic decision makers, such as investment bankers and CEOs, often take excessive financial risks. However, it is less well understood how risk cultures emerge, that is, the propensity of whole groups of people to be biased towards risky financial decision making. Our study examines how basic social learning can contribute towards the emergence of such risk cultures. We study the investment choices of group members in a laboratory experiment, where top performance is the result of fortunate, but risky investment behavior. Our results suggest there is a significant and detrimental role visible top performers play. If top performers are made salient, risky decision-making is spreading rapidly throughout the group. The experiment also highlights under which economic context conditions such risk-taking cultures are strengthened, and the implications for success-biased peer learning in organizations.