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Myopic risk-taking in tournaments

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  • Eriksen, Kristoffer W.
  • Kvaløy, Ola

Abstract

There is a common notion that incentive schemes in the financial industry trigger myopia and risk-taking. In some sense this contrasts with the concept of myopic loss aversion (MLA), which implies that myopia mitigates risk-taking. A number of experimental studies support the MLA-hypothesis by showing that people take less risk the more frequently their investments are evaluated. In this paper we show experimentally that if subjects are exposed to tournament incentives, the standard MLA effect disappears. Rather, there is a tendency towards more risk-taking the more frequently investments are evaluated.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 97 (2014)
Issue (Month): C ()
Pages: 37-46

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Handle: RePEc:eee:jeborg:v:97:y:2014:i:c:p:37-46

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Web page: http://www.elsevier.com/locate/jebo

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Keywords: Risk-taking; Incentives; Tournaments; Myopic loss aversion;

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Cited by:
  1. Rudi Stracke & Wolfgang Höchtl & Rudolf Kerschbamer & Uwe Sunde, 2014. "Optimal prizes in dynamic elimination contests: Theory and experimental evidence," Working Papers 2014-08, Faculty of Economics and Statistics, University of Innsbruck.

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