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Risk Taking in Asymmetric Tournaments

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Author Info
Matthias Kräkel
Dirk Sliwka

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Abstract

A tournament is examined in which two agents with different abilities choose efforts as well as risks. According to the previous literature, the more (less) able agent should choose a low (high) risk strategy, because the first one does not want to imperil his favorable position, whereas the last one can only gain by increasing risk. We show that this is not necessarily true. Risk taking affects equilibrium efforts as well as winning probabilities. Depending on both effects diverse equilibria are possible. For example, the low and the high ability agent may both choose high risks or both choose low risks. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2004.

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Publisher Info
Article provided by Blackwell Publishing in its journal German Economic Review.

Volume (Year): 5 (2004)
Issue (Month): 1 (02)
Pages: 103-116
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Handle: RePEc:bla:germec:v:5:y:2004:i:1:p:103-116

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring. [Downloadable!] (restricted)
  3. Hans K. Hvide, 2000. "Tournament Rewards and Risk Taking," Econometric Society World Congress 2000 Contributed Papers 0163, Econometric Society. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eriksen, Kristoffer & Kvaløy, Ola & Olsen, Trond, 2008. "Tournaments with price-setting agents," UiS Working Papers in Economics and Finance 2009/5, University of Stavanger. [Downloadable!]
    Other versions:
  2. Matthias Kräkel & Petra Nieken & Judith Przemeck, 2008. "Risk Taking in Winner-Take-All Competition," Discussion Papers 233, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  3. Nieken, Petra & Sliwka, Dirk, 2008. "Risk-Taking Tournaments: Theory and Experimental Evidence," IZA Discussion Papers 3400, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Matthias Kräkel, 2007. "Optimal Risk Taking in an Uneven Tournament Game with Risk Averse Players," Bonn Econ Discussion Papers bgse4_2007, University of Bonn, Germany. [Downloadable!]
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  5. Christian Grund & Oliver Gürtler, 2005. "An Empirical Study on Risk Taking in Tournaments," Bonn Econ Discussion Papers bgse6_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  6. Kai A. Konrad, 2005. "Tournaments and Multiple Productive Inputs: The Case of Performance Enhancing Drugs," IZA Discussion Papers 1844, Institute for the Study of Labor (IZA). [Downloadable!]
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