Bounded subadditivity in management decisions

Abstract

Purpose As subjects irrationally perceive probability changes as more impactful when shifting an event from impossible to possible or from possible to certain, compared to increasing the likelihood of an already possible event, this study examines how workers process success probabilities and whether their resource allocation decisions are distorted by bounded subadditivity. Design/methodology/approach We conduct an online randomized experiment with 3,980 employees. Findings We detect a certainty effect (upper subadditivity), whereby professionals are willing to devote a disproportionate number of hours to a project when their contribution transforms the success of the initiative from possible to certain rather than increasing the likelihood of success by the same percentage points. We find no evidence of the possibility effect (lower subadditivity), whereby workers would devote a disproportionate effort when their contribution turns a sure failure into a possible success rather than simply increasing the likelihood of success by the same percentage points. We observe a rational tendency to try harder for a greater increase in the probability of success, but only far from the limits of the probability spectrum and not close to the limits. Originality/value Attempts to understand bounded subadditivity in management decisions have been incomplete. We disentangle two real-world variables and offer a more refined operationalization.

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