Opportunities, Threats, and Strategic Choice: The Modifying Role of Emotion

Abstract

Business models often transform due to adaptation in response to external changes. However, relatively little is known about what causes these types of adaptations. We suggest that threat-rigidity as well as prospect theory have the potential to explain what causes business model adaptation in response to gains and losses. Firm leaders’ inclination to adapt their business model is sensitive to risk that is perceived as a gain or a loss in the macro-economic environment. We apply threat-rigidity and prospect theories to examine the relationship between risk perception and business model adaptation. We also investigate if emotion has explanatory value for how managers adapt to business models. We test our hypotheses in a field experiment involving 95 Scandinavian managers. Here, we relate managers’ inclinations to adapt to different business models under different risk scenarios. The results reveal that, in general, managers are more risk seeking in gain scenarios than in loss scenarios. This finding is in line with the threat-rigidity theory. In addition, emotional style is found to relate more to risk aversion than to risk seeking in the domain of potential gain. We argue that emotional style has explanatory value for how managers adapt to business models, because emotions are key influencers on risk perception.