Resolving the Performance Feedback Puzzle: CEO Psychopathy, Heterogeneous Emotional Responses to Aspiration Gaps, and Risk-Taking

Theoretical perspectives provide conflicting predictions regarding how firms adjust risk-taking in response to performance–aspiration gaps. The behavioral theory of the firm attributes increased risk-taking to problemistic search under negative gaps, whereas threat–rigidity theory predicts a reduction in risk-taking. Under positive gaps, the behavioral theory of the firm’s satisficing logic implies decreased risk-taking, while slack search theory indicates the opposite effect. We integrate these competing theoretical logics through trait activation theory by introducing CEO psychopathy as a source of heterogeneity in responses to performance feedback. We argue that performance–aspiration gaps function as situational cues that activate differences in CEOs’ sensitivity to threat and reward cues, generating distinct emotional responses. The relationship between performance–aspiration gaps and risk-taking shifts from negative at lower levels of CEO psychopathy to positive at higher levels. Using fixed effects models on a longitudinal dataset of Finnish firms and a population-scale psychometric measure of CEO psychopathy collected independently of firm outcomes, we find empirical support for these predictions. Our theory reconceptualizes satisficing, threat–rigidity, problemistic search, and slack search as conditionally activated behavioral regimes rather than competing predictions tied solely to the valence of the performance–aspiration gap.