An examination of collective behavior, optimism, uncertainty and their effects on corporate strategies in the home building industry

Abstract

Research was conducted to determine whether there is a relationship between the theory of collective behavior and the selection of a corporate strategy. To conduct the first portion of the study, existing survey information was obtained from the National Association of Home Builders to investigate the existence of a heightened shared feeling of optimism within the home building industry. A test of the variance (ANOVA) suggests that during the housing boom the industry experienced peak levels of optimism consistent with the theory of collective behavior.

Using secondary financial data, the research then investigated the possibility that builders moved to a growth strategy as a response to that heightened sense of optimism. A test of the variance (ANOVA) suggests that builders moved to a growth strategy as a response to the heightened optimism by substantially increasing their assets, debt and shares outstanding, as compared to previous years.

Using the results of 150 surveys, the study investigated the theory that optimism lowers the effects of uncertainty. Hence, the research hypothesized that as optimism increases, uncertainty decreases, and as a result, strategic growth decisions become more likely. The research found strong correlations between respondents who were optimistic and those willing to make decisions that are consistent with growth strategies. The analysis found negative correlations with optimism and uncertainty. More specifically, the research concluded that as optimism increases, uncertainty decreases, and thus, home building managers are more likely to move to a growth strategy.

In general, the research supports the hypothesis that collective behavior can have a significant impact on strategic decisions among managers. While previous research suggests that information is the variable that lowers levels of uncertainty, this research supports the possibility of an additional variable: optimism.