We draw on the behavioral theory of the firm and prospect theory to examine how performance feedback (decision context) and the characteristics of the alternatives (decision content) that decision makers face jointly determine organizational risk-taking choices. While the behavioral theory of the firm has identified performance feedback’s important role in driving organizational risk-taking decisions, it has not considered the intrinsic attributes of alternatives, specifically the magnitude and likelihood of their outcomes, which have been the focus of prospect theory. We argue that these two attributes play a key role in decision makers’ assessment of alternatives, but because achieving organizational goals is the prime objective in organizations, performance feedback drives how decision makers process information regarding these attributes. Analyzing 23,895 fourth-down decisions from the U.S. National Football League, we find that decision makers weigh attainment discrepancy and the magnitude and likelihood of outcomes in their choices, depending on deadline proximity. Furthermore, the size and valence of attainment discrepancy modify the weight of the magnitude and likelihood of outcomes in risky choices. Our arguments and findings suggest extensions to the behavioral theory of the firm and imply modifications to prospect theory when applied to the organizational context.
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