Changing Conditions: Effect of Environmental Uncertainty on Organizational Risk Taking in Formula 1 Racing

Organizations typically engage in uncertainty reducing activities while experiencing environmental uncertainty. In this paper, I argue, how under certain conditions of competition and uncertainty, organizations can engage in increased risk taking which can add to their experience of uncertainty rather than reducing it. I posit, environmental uncertainty reduces the average performance across organizations as well as the per- formance differentials between them leading to greater competitive crowding around them. Additionally, reduced performance differentials revise the risk-reward payoffs which alter the incentive structure for risk taking by organizations at various levels in the performance hierarchy. I test my predictions by examining risk taking in Formula 1 car racing both at the race level and at the driver level. I find that uncertainty reduces performance differentials between organizations leading to increased risk taking at the race level. Further, as uncertainty increases, lower performing organizations engage in greater risk taking compared to higher performing organizations.