Risk Taking in Winner-Take-All Competition
AbstractWe analyze a two-stage game between two heterogeneous players. At stage one, common risk is chosen by one of the players. At stage two, both players observe the given level of risk and simultaneously invest in a winner-take-all competition The game is solved theoretically and then tested by using laboratory experiments. We find three effects that determine risk taking at stage one - an effort effect, a likelihood effect and a reversed likelihood effect. For the likelihood effect, risk taking and investments are clearly in line with theory. Pairwise comparison shows that the effort effect seems to be more relevant than the reversed likelihood effect when takin risk.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse7_2008.
Date of creation: 03 Apr 2008
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Tournaments; Competition; Risk-Taking; Experiment;
Other versions of this item:
- Kräkel, Matthias & Nieken, Petra & Przemeck, Judith, 2008. "Risk Taking in Winner-Take-All Competition," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 233, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-CBE-2008-04-12 (Cognitive & Behavioural Economics)
- NEP-COM-2008-04-12 (Industrial Competition)
- NEP-EXP-2008-04-12 (Experimental Economics)
- NEP-UPT-2008-04-12 (Utility Models & Prospect Theory)
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