ISRC-WP-19970401 Introduction

Validation of the Sitkin-Weingart Business Risk Propensity Scale. Richard A. Huff, Mark Keil, Leon Kappelman, and Victor Prybutok

Risk is an inherent component of business transactions. Today's flattened business organizations are forcing strategic, risk-related decisions farther down the organizational hierarchy (Richards et al. 1996). Therefore, every business decision maker has to become proficient at factoring risk into the decision-making process. How the risk level of the transaction affects the decision maker and the eventual decision is a function of that person's risk propensity. For senior managers in those flattened organizations facing the necessity of having less-senior individuals making strategic decisions, the attitudes of those individuals toward risk is extremely important.

Risk propensity is viewed as "the willingness of people to take risks" (MacCrimmon and Wehrung 1985, 1). In the business context, the ability to measure an individual's risk propensity may be an important capability for managers considering delegating decision-making authority to those lower in the organization. Given the increasing pace and uncertainty of the business climate, any effort that assists managers in performing their functions by providing useful information and lowering their uncertainty level will be truly valuable.

Development and validation of a useful, reliable, and quick measure of individual risk propensity in the business context would provide a valuable tool for the business community. This paper reports the results of an experiment designed to ascertain the validity of a five-item scale proposed by Sitkin and Weingart (1995) as a measure of business risk propensity. Section II reviews the prior research on risk propensity. Section III describes the research design. Section IV discusses the findings and Section V explores their meaning and implications for future research.

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