Organizational Behavior and Human Decision Processes 117 (2012) 249–260
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Organizational Behavior and Human Decision Processes
journal homepage: www.elsevier.com/locate/obhdp
Power and overconfident decision-making Nathanael J. Fast a,⇑, Niro Sivanathan b, Nicole D. Mayer c, Adam D. Galinsky d a Department of Management and Organization, Marshall School of Business, University of Southern California, United States b Department of Organisational Behaviour, London Business School, UK c Department of Psychology, University of Illinois, Chicago, United States d Department of Management and Organizations, Kellogg School of Management, Northwestern University, United States
ARTICLE INFO
Article history: Received 27 September 2010 Accepted 14 November 2011 Available online 16 December 2011 Accepted By Douglas Brown
Keywords: Power Overconfidence Overprecision Decision-making Positive illusions Hubris Sense of power
Introduction
ABSTRACT
Five experiments demonstrate that experiencing power leads to overconfident decision-making. Using multiple instantiations of power, including an episodic recall task (Experiments 1–3), a measure of work-related power (Experiment 4), and assignment to high- and low-power roles (Experiment 5), power produced overconfident decisions that generated monetary losses for the powerful. The current findings, through both mediation and moderation, also highlight the central role that the sense of power plays in producing these decision-making tendencies. First, sense of power, but not mood, mediated the link between power and overconfidence (Experiment 3). Second, the link between power and overconfidence was severed when access to power was not salient to the powerful (Experiment 4) and when the pow-erful were made to feel personally incompetent in their domain of power (Experiment 5). These findings indicate that only when objective power leads people to feel subjectively powerful does it produce over-confident decision-making.
© 2011 Elsevier Inc. All rights reserved.
In 2009, British Petroleum (BP) executives confidently down-played potential risks associated with their oil well located in the Gulf of Mexico, assuring regulators that it was virtually impossible for a major accident to occur (Achenbach, 2010). Months later, an oil rig exploded, killing 11 workers and resulting in a massive oil leak that spanned more than a mile underwater. The executives, who have since been accused of an ongoing pattern of overlooking safety precautions, could have prevented the accident with greater attention to and preparation for potential hazards (Burdeau & Mohr, 2010). In 2000, AOL’s CEO, Steve Case, orchestrated a $350 billion deal with Time Warner, the largest merger in history at that time. In spite of his assuredness that the new arrangement would lead to sustained profit and growth, the deal squandered $54 bil-lion in shareholder value in the first quarter alone, and led to his demise as CEO. As was the case in these two stories, the decisions made by power holders across a multitude of arenas—including businesses, government, religious institutions, and nonprofit orga-nizations—are often marred with overconfidence (e.g., see Hay-ward & Hambrick, 1997; Hribar & Yang, 2010; Li & Tang, 2010; Malmenier & Tate, 2005, 2008). Furthermore, when powerful
⇑ Corresponding author. Address: University of Southern California, Marshall School of Business, BRI 306, 701 Exposition Blvd., Los Angeles, CA 90089, United States. Fax: +1 213 740 3582. E-mail address: nathanaf@usc.edu (N.J. Fast).
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leaders are plagued with overconfidence, the consequences for performance can be detrimental. Making important decisions in the absence of adequate information hinders not only one’s own performance and ability to maintain power, but often hurts compa-nies, stockholders, and the general public too, as the AOL and BP cases highlight. In spite of the attention given to the occurrence of overconfi-dence among the powerful, little is known about the social and psychological factors that are responsible for overconfidence among power holders. In the current research, we attempt to understand the precise nature of this relationship, exploring not only what causes it but also when it is most likely to occur. We also examine alternative explanations for the presence of over-confidence among the powerful. On the one hand, it could be that overconfident individuals are drawn to power and/or are more likely to obtain high-power positions (e.g., see Anderson & Brion, 2010). If so, the implication would be that carefully promoting only those who do not have pre-existing tendencies toward over-confidence would help to address the problem. Alternatively, the experience of having power, itself, may create or produce over-confidence, above and beyond one’s pre-existing tendencies, mak-ing taming the relationship between power and overconfidence a considerably more complicated task. In the present research, we examine precisely this possibility, exploring whether, when, and why the experience of power may facilitate overconfident deci-sion-making.
