The Effects of Risk Attitude on Competitive Sucess in the Construction Industry



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This dissertation investigates the latent but critical effects of risk attitude on competitive success in construction applying an evolutionary approach. The approach considers contractors as individual entities competing with each other for common job opportunities, and competition as an evolutionary process in the market. In construction, competitive bidding is the major mechanism of competition. Bidding itself is an important managerial function in a construction organization while it is risky since the actual cost of a job is unknown. Therefore, contractors' risk-taking in competition is an essential element in the construction business. Individuals may behave differently in competition depending on their own risk attitude which defines what risks can be accepted or not in an organization. Depending on the differences in risk-taking, the result of a competition varies. How contractors compete, that is, how they take risks in competition affects the competition among themselves. Also, contractors' performance is differentiated through competition to decide successful firms and unsuccessful firms. The current study investigates the effects of risk attitude, which is the latent basis for contractors' different behaviors in competition. The current investigation is unique in that it combines: 1) an evolutionary approach; 2) behavioral decision-making under uncertainty; 3) multi-level analyses from the individual to the aggregate; and 4) a long-term perspective on firms' success and life-cycles (birth, death, survival, growth, contraction, and market diversification). The developed evolutionary model simulates and analyzes competition among contractors in the competitive bidding environment. A new method is proposed to represent contractors' different risk-taking behaviors depending on their own risk attitude. The analysis accounts for contractors' differences in risk-taking, their performances through competition, and corresponding organizational changes in life-cycles at the individual level, and aggregate patterns evolving at the population level as resultants of competition over long time periods. The study finds that risk attitude is a latent but dominant competitive characteristic of contractors by identifying the critical effects of risk attitude on competitive success. The results provide new insights on competition and recommendations for contractors' competitive success, which are not available using conventional approaches.