Are public managers more risk averse? Framing effects and status quo bias across the sectors

Abstract

Modern reforms meant to incentivize public managers to be more innovative and accepting of risk are often implicitly based in the longstanding assumption that public employees are more risk averse than their private sector counterparts. We argue, however, that there is more to learn about the degree to which public and private managers differ in terms of risk aversion. In order to address this gap, we field a series of previously validated experiments designed to assess framing effects and status quo bias in a sample of public and private sector managers. Our results indicate that public managers are not more risk averse or anchored to the status quo than their private sector counterparts; in fact, the findings suggest the opposite may be true under some conditions. In addition, our results fail to confirm previous findings in the literature suggesting that public service motivation is associated with risk aversion. We conclude with a discussion of the implications of these results for the study of risky choice in the public sector and for modern public management reforms.

The effects of public service motivation, risk propensity and risk perception on defensive decision-making in public administrations

“…When making judgements about what is best for the community (Yang and Callahan, 2007), public managers are typically confronted with risk and uncertainty (Nicholson-Crotty et al, 2019). As already mentioned, in most cases, they face "risk-risk trade-offs" (Hood, 2002, p. 32) rather than a simple choice between risk and its absence (Hood, 2002(Hood, , 2007.…”

“…With respect to the public sector context, scholars typically have argued that public agents are more risk-averse than their private counterparts (Bellante and Link, 1981;Buurman et al, 2012;Guiso and Paiella, 2008;Hartog et al, 2003;Pfeifer, 2010). Nevertheless, Bozeman and Kingsley (1998) and Nicholson-Crotty et al (2019) found only small differences in risk aversion across sectors. However, based on the concept of PSM, public servants' willingness to serve others and to realize the opportunity to act in the interests of those others should motivate them to take (additional) risks, when they have high levels of PSM.…”

“…Transferring these ideas to a public manager's decision-making context, PSM as a motivational driver of a public manager's decision-making has to be considered. A higher level of PSM motivates public decision-makers to serve the public and to ignore egoistic motives and work-specific rules (Nicholson-Crotty et al, 2019;Schott et al, 2019). Nicholson-Crotty et al (2019) show that public managers tend to focus on the negative outcomes for the public that can occur if a risky action is not executed.…”

“…Our study makes three contributions to the literature. First, we contribute to the relatively small amount of research on the risk-taking behaviour of public managers (Nicholson-Crotty et al, 2019;Bozeman and Kingsley, 1998) by explaining the indirect impact of PSM on their risk-taking behaviour. Second, this paper furthers the understanding of the influence of risk perception and risk propensity on decision-making and enhances the models of Sitkin and Pablo (1992) and Sitkin and Weingart (1995).…”

Darwin’s bureaucrat

“…10 Leadership, cooperation, empathy-these are all areas with which the policy and public administration fields have concerned themselves, yet these lines of research have largely remained separate. Further, most of the work (though certainly not all-see Nicholson-Crotty, Nicholson-Crotty, and Webeck 11 and Christensen and Wright 12 for two recent examples) has focused on the public's attitudes surrounding policy and bureaucracy. The present article endeavors to demonstrate how we might take the existing momentum forward by tackling theories of bureaucratic behavior.…”