Whether risk-taking is beneficial or destructive depends on the goal finds joint research from Professor Gavin Kilduff.
Coke vs. Pepsi. Apple vs. Samsung. Yankees vs. Red Sox. Patriots vs. Jets. Rivalries can deepen brand loyalties, spur innovation, and encourage the kind of risk-taking that leads to big wins. But rivalries can just as easily provoke actions that lead to significant losses, from an upset in the SuperBowl to the 2008 financial crisis.
New research from NYU Stern PhD student Christopher To and Professor Gavin Kilduff, along with Lisa Ordóñez of the University of Arizona and Maurice Schweitzer of the Wharton School at the University of Pennsylvania, finds that rivalries increase an individual’s propensity to make risky decisions, which may help or harm the greater whole.
“Our findings provide managers with critical information to help them better evaluate whether rivalry will be beneficial or harmful for the performance of their organization and employees,” the authors explain.
In this first-of-its-kind study, the authors examined archival data from more than 2,000 regular season NFL games, totaling almost 500,000 unique plays, and found that teams, when competing against a rival team, were 37% more likely to forgo kicking an extra point to instead attempt a two-point conversion and 17% more likely to “go for it” on fourth-down by running a play instead of punting or attempting a field goal. A related behavioral study with more than 140 University of Arizona students confirmed their results and showed perceived rivals took 17% more risks than non-rivals, which was partly explained by a 11% greater increase in their heart rate.
Combined, their studies show that rivalry promotes greater risk-taking by triggering a heightened play-to-win mindset and elevated physiological stress. In turn, this suggests that:
- The drive to succeed sparked by rivalry can lead to important innovations, such as the light bulb, but it can also encourage gross overextensions, harming organizational performance and leading to disaster, as happened with traders and financial institutions prior to the 2008 financial crisis.
- Because business rivalries involve constant competition, as opposed to occasional matches between rivals in sports, business rivalry may be more potent and sustained, thus leading to chronic levels of stress which might contribute to detrimental long-term health effects.
- The fewer and more equal the competitors are, the more likely a rivalry will develop, leading to greater risk-taking.
Source: NYU Stern School of Business