Is It Always Good to Follow the Mood? an Experimental Study on the Impact of Social Mood on Business Strategies.
An experimental study on the impact of social mood on business strategies
Linda Alengoz*, Marco Castellani° and Flaminio Squazzoni'
Department of Economics and Management
University of Brescia
Via San Faustino 74/B, 25122 Brescia, Italy
*linda.alengoz@gmail.com
° marco.castellani@unibs.it
' flaminio.squazzoni@unibs.it
Abstract
This paper aims to examine the impact of social mood on business strategies by analysing decision making in different organizational contexts. We built an experiment where subjects were asked to play the role of managers and invest a fictitious budget following prudential or risky business strategies. Subjects were provided with information on the company they were called to manage and the business environment, as well as the information on social mood in the countries in which the company operated. For social mood, we meant information on the social context, e.g., population growth, trust indicators, women employment etc., which has no direct, business related content. Before the experiment subjects were profiled in terms of risk aversion, equally assigned to two experimental groups. In the first group, subjects were asked to manage a traditional manufacturing business. In the second one, subjects were asked to manage a company producing high tech components. The rationale of the hypotheses was that pessimistic social mood could rule out certain company-specific factors as subjects tended to overreact to the induced negative mood scenario. This includes the attempt of defending short-term achievements by adopting less risky retrenchment strategies and cutting off unnecessary expenditures. In case of optimistic social mood, the differences between companies were expected to have a more important role. Subjects leading an innovative company were expected to follow long-term prospects of investment, while subjects leading a traditional company were expected to be more prone to incremental innovation with moderate risk. This means not only that social mood could have a dramatic influence on decision-making; it also means that seemingly irrelevant information, which is not directly related to the business market, may influence decision making.
Preliminary results showed that in the situation of optimistic social mood, subjects were more inclined towards risky investment decisions although here the company-specific features were more important. In situation of pessimistic social mood, company specific features were less important in discriminating about prudential vs. risky investment decisions. On the other hand, we also found a significant effect of the risk propensity of subjects, especially when combined with company-specific features. Furthermore, preliminary results on the social influence effect indicated that this effect is largely unpredictable as decisions are also influenced by past success or failures, confirming March’s findings on symmetric reactions to subject to cases of failures and success. While our experiment helped us to look at the business decision-making in an “artificial scenario” and so cast some light on potential heterogeneity of business strategies and the importance of socially induced perceptions, the next step is to set up an empirical research to empirically verify the experimental findings.