Coping with uncertainty

Abstract
Defensive decision making occurs when employees do not decide in the best interest of the organization but rather opt for a personally safer alternative. Analyzing defensive decision making through the lens of the behavioral theory of the firm, we hypothesized that psychological safety and authentic leadership mitigate defensive decisions as they reduce the perceived uncertainty should anything go wrong. An experimental scenario study with 315 managers in a large organization provides causal evidence that the combination of low psychological safety and low authentic leadership increases defensive decisions. Whereas a leader’s authenticity offset a lack of psychological safety, it did not further reduce defensive decisions if psychological safety was present. We developed a tool that provides a first estimate of the consequences of defensive decision making in terms of forgone opportunities which equate to 10.8% of the annual revenue for the organization studied. Effectively coping with uncertainty is thus highly relevant.