Last week Manchester City became Premier League champions
after a nail-biting match that had them lagging 1 to 2 by the end of regulation
time, and so second in the Premier League after local rivals Manchester United,
but then recovering with two injury-time goals to win the match and league. It
was surely an effort to bring their fans to the edge of their seats, as well as
the Manchester United fans. Lest we think that such late-game heroics are local
the kind of football played in Europe (and, pretty much everywhere), fans of
American football know that many games are decided by magical plays in the last
two minutes of the 60-minute game time.
What is going on in those last few minutes, and why is it so
different from the rest of the game? Looking at the data from American
Football, Lehman and coauthors (2011) looked at the deadline-proximity effect.
It starts with the idea that decision makers make changes and take risk if their
performance is below a goal, or aspiration level. This is known in many
situations, and is actually best documented for organizations making changes
when their performance is low (Greve, 2003). But being below is worse just
before a deadline, because then one has to do something truly dramatic and
risky to catch up. And in fact, that is exactly what the football teams in the study
were doing, because they were choosing a riskier play when they were behind
late in the game then they were equally behind earlier.
Is such risk-taking good? For sports, it may be. Risky plays
naturally have a chance of failing, but the extra risk could well be worth the
chance of winning the game, and losing by more points is not such a great loss.
The only problem would be the following. Risk in sports and in management is
unfortunately more similar than we would like it to be, because there is the
same sense of winning when getting just above a target level in management,
even when the targets are arbitrary and the deadlines (usually by accounting convention)
are arbitrary as well. We do not know yet, but it is reasonable to expect that
some late-period risk taking occurs also in firms. Does the level of risk
taking by managers and others in organizations matter enough for us to care
about whether it is done consistently over time? A good person to ask that
question would be J.P. Morgan Chase CEO James Dimon, who is now looking at
losses estimated to $3-5 billion inflicted on the bank by some unusual trading
positions.
Greve, H. 2003. Organizational
Learning from Performance Feedback: A Behavioral Perspective on Innovation and
Change. Cambridge University Press.
Lehman, D. W., Hahn, J., Ramanujam, R., & Alge, B. J. 2011. The Dynamics of the Performance-Risk Relationship Within a Performance Period: The Moderating Role of Deadline Proximity. Organization Science, 22(6): 1613-1630.
