Risk-type preference shifts in response to performance feedback

The behavioral literature examines how performance feedback drives risky change. In this conceptual article, I incorporate the overlooked alternative to risky change: not changing and the risk associated with such omission. After all, both commissions and omissions can have extensive outcome variability. I propose that firms alter their preference for the type or risk, depending on how well they fared with their previous preference. I then further qualify these shifts in two ways: I discuss the extent of risk that firms are likely to take in the form of omissions and commissions, respectively, and I consider the frequency and magnitude with which the shifts are likely to occur. Theory of risk-type preference shifts may explain and reconcile seemingly disparate prior findings on risk-taking in response to performance feedback. To facilitate future research on firm behavior and resource allocation in dynamic environments, I provide three testable propositions and suggest ways to operationalize the new constructs.