How stress and personality type affect leader’s risk tolerance & decision-making
Sherrie Haynie, Senior Director of US Professional Services for The Myers-Briggs Company
5 min. read
In most organizations, leaders can’t get away from stress.
They can learn to better understand their own stress triggers, and learn how to better manage stress for themselves, but they can’t escape stress at work. And that’s OK, because a moderate stress is normal and has positive benefits. As stress levels increase, however, our thinking often becomes clouded by negative emotion. In these states, leaders are prone to make poor decisions, as demonstrated by a 2017 study by Wemm and Wulfert.
Especially for leaders and upper-level management, poor decision-making can have tremendous consequences. At these levels, decisions affect the well-being of individual employees as well as the organization as a whole.
Numerous studies show stress can affect our approach to risk, which is strongly tied to investment and business strategy. The last thing you want your leaders doing while stressed is make poor strategic decisions because they haven’t been taught the skills to manage their stress properly or they’re lacking foundational self-awareness.
It starts with self-awareness
Self-awareness is important for everyone, but it’s critical for leaders.
If a leader knows how their personality type affects their natural approach to risk-taking, as well as what stresses them out in the first place, they’re less likely to react the stress by making poor decisions.
Take a look at how personality preferences may influence a leader’s tolerance for risk, based on the Myers–Briggs Type Indicator® (MBTI®) type. MBTI type identifies whether we:
- Focus attention on the outside world of people and things (Extraversion) or the inner world of thoughts and feelings (Introversion)
- Trust and use information based on experience and the evidence of the five senses (Sensing) or consider the future and how things connect to make the big picture (Intuition)
- Make decisions on the basis of objective logic (Thinking) or of values and on how the decision will affect people (Feeling)
- Live in a more structured, organized way (Judging) or in a more flexible, spontaneous way (Perceiving)
How personality type affects risk tolerance and risk aversion
A study by Filbeck, Hatfield and Horvath found that investors with a higher tolerance for risk were more likely to have a Thinking preference, while those with a Feeling preference were more risk-averse.
Furthermore, a study by Desmoulins-Lebeault, Gajewski and Meunier also found that those with preferences for Introversion, Sensing, Feeling and Judging were more risk-averse.
The team found an interaction effect between E-I and T-F. Among those preferring Extraversion, those who also had a Feeling preference were more risk-averse than those with a Thinking preference. In other words, leaders preferring ESFP, ESFJ, ENFP, and ENFJ were more likely to be risk-averse than those with preferences for ESTP, ENTP, ESTJ, and ENTJ. Additionally, keep in mind that leaders and executives in Western cultures are more likely to have preferences for Extraversion and Thinking in general.
As stress reaches higher levels, we often tend to overuse our natural personality preferences.
In other words, if we’re prone to be risk-takers, we may find ourselves taking bigger risks, and vice versa if we are naturally risk-averse.
By recognizing this tendency, leaders can bolster themselves from some of the more extreme strategic choices they might otherwise make, such as the decision to liquidate parts of the business, reorganize departments or proceed with layoffs (the last of which much research, including Bersin and Casio, has shown to have more negative than positive outcomes for organizations as a whole).
Here're a few more reasons why leaders should consider their risk tolerance:
Goal alignment: Understanding risk tolerance helps leaders align their strategic decisions with the overall goals and objectives of their organization. For instance, if the organization seeks market expansion, leaders with a higher risk tolerance may be better suited to make bold moves that carry higher risks but also higher potential rewards.
Resource allocation: Risk tolerance plays a role in determining how leaders allocate resources. Leaders with a higher risk tolerance may allocate more resources towards projects or initiatives that have a higher risk but also a higher potential payoff. On the other hand, leaders with a lower risk tolerance may prefer to allocate resources towards more stable and proven ventures.
Organizational culture: Risk tolerance influences the culture within an organization. If leaders are risk-averse, it may discourage employees from taking risks and exploring new opportunities. Conversely, if leaders have a higher risk tolerance, it can foster a culture of innovation, experimentation, and learning from failures. Additionally, leaders should be aware of how their risk tolerance compares to the company’s culture of risk tolerance or risk aversion, as it could potentially cause conflict within the organization.
Understanding what stresses leaders – and how to deal with it
In addition to understanding our natural tolerance or aversion to risk under stress, understanding personality type can help us better control stress by more easily identifying and managing things that stress us out.
Here is a sampling of typical stressors for personality types (for a more complete list of stressors by type, check out this report):
ISTJ: disorder, deviating from routine, deviation from established rules and regulations
ISFJ: disregard for established rules and regulations, insufficient time to prepare
INFJ: an inflexible work environment and forced time management, negativity from others
INTJ: disorganized work environments, micromanaging, no set goals, mindless rules
ISTP: being forced into extraverted activities, lack of independence, small talk
ISFP: too much happening all at once, procedures that limit freedom
INFP: time management requirements, mundane work, negativity, unclear expectations
INTP: socializing, noise and other interruptions, following strict guidelines
ESTP: isolation, quick decisions
ESFP: being restrained by a routine, virtual training
ENFP: organization at the expense of creativity, micromanaging, overcommitment
ENTP: isolation, too many details and deadlines, inefficiency
ESTJ: disregarding established rules, inefficiency, lack of control, constant changes
ESFJ: disregarding established rules, lack of emotional support, isolation
ENFJ: seclusion, harmony being disrupted, unexpected changes
ENTJ: inefficiency, lack of control, loneliness, disorganization
Building the skills to make changes and better manage stress
You probably noticed two groups in the above list — one that is stressed out by a loss of structure to one’s routine, and one that is stressed out by too much structure.
It’s easy to see how either of these could be someone’s reality in leadership and executive positions. Think of the amount of structure in an entrepreneurial organization vs. the amount of structure in a mature government organization.
And if a leader’s working from home, they may find that your routine has been unpleasantly disrupted and the structure they’d previously built working in the office disappearing.
A leader who prefers less structured work environments and is working remotely may find that their executives are asking for more reporting and checking in for the sake of accountability. And they’re asking for the leader to also pursue the same accountability with the employees they manage.
Either way, the path to clear-headed thinking (which is crucial to striking the balance between risk tolerance and risk aversion that’s necessary for sound management) starts with the leader answering these three questions:
- What are the biggest causes of stress for me?
- How does increased stress affect my natural tendencies toward risk? Do I become more risk tolerant or more risk averse?
- What elements of my life that cause me stress can I control? What can I do to mitigate that stress?
Want to learn more about leadership, stress or decision-making? Take a look at these resources below:
For leaders, managers and development professionals:
7 Critical Competencies for Effective, Productive Leaders (eBook)
MBTI Essentials + Building Resilience (virtual workshop)
The Myers-Briggs Company Podcast: Burnout