Which leaders engage in moral hazard decision-making and why?

What is it about?

Dominant leaders, i.e. those who are assertive, forceful and intimidating, engage in decision-making that benefits themselves at the cost of others. This is known as moral hazard decision-making. Dominant leaders focus on end goals rather than the means explains such decision-making tendency.

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Photo by Ashkan Forouzani on Unsplash

Photo by Ashkan Forouzani on Unsplash

Why is it important?

After the 2008 financial crisis, a number of economists and policymakers blamed it on moral hazard decision-making on the part of hedge fund managers. Such decision-making entails putting others at risk while benefitting oneself. Hence, it was important to understand which leaders or decision-makers engage in such behaviors. Previous research has broadly discussed that those with power engage in such decision-making. However, such research lacks specificity because not all leaders engage in such decision-making. This research specifically demonstrates that dominant leaders engage in moral hazard decision-making and this is driven by their desire to focus on outcomes rather than the means with which they achieve their goals. Our work further scores a focus on process rather than outcome accountability may help overcome this tendency among dominant leaders.