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Is the psychology of high profits detrimental to industrial renewal?: experimental evidence for the theory of transformation pressure
Department of Economics, Stockholm University, Stockholm, Sweden .
Örebro University, Örebro University School of Business.ORCID iD: 0000-0002-1445-7699
2015 (English)In: Journal of evolutionary economics, ISSN 0936-9937, E-ISSN 1432-1386, Vol. 25, no 2, 475-511 p.Article in journal (Refereed) Published
Abstract [en]

The theory of transformation pressure maintains, by reference to cognitive and emotional factors, that productivity and innovation are stimulated by a decline in actual profits. In periods of increasing profits, firms governed by historical relativism, the peak-end rule and overconfidence will opt for the status quo. In the following profit recession, actors become more alert, calculating and creative, favoring a transformation, especially if they fear that the survival of the firm is at stake. The theory of transformation pressure was tested by a within-subjects experiment where undergraduate students in macroeconomics acted as managers for an established company. The role play sheds light on the students' investment strategy choices and underlying psychological perceptions under varying profit conditions. The theory was only partly confirmed by the experiment. There are arguments in industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressure and good opportunity.

Place, publisher, year, edition, pages
2015. Vol. 25, no 2, 475-511 p.
Keyword [en]
Transformation pressure, Bounded rationality, Economic psychology, Productivity growth, Innovation, Status quo bias
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:oru:diva-44815DOI: 10.1007/s00191-015-0399-3ISI: 000354196900006OAI: oai:DiVA.org:oru-44815DiVA: diva2:816321
Available from: 2015-06-03 Created: 2015-06-03 Last updated: 2017-10-17Bibliographically approved

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