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Risk Taking in Winner-Take-All Competition

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  • Matthias Kräkel
  • Petra Nieken
  • Judith Przemeck

    ()

Abstract

We 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 Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse7_2008.

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Length: 50
Date of creation: 03 Apr 2008
Date of revision:
Handle: RePEc:bon:bonedp:bgse7_2008

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Keywords: Tournaments; Competition; Risk-Taking; Experiment;

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References

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Cited by:
  1. Ottone, Stefania & Ponzano, Ferruccio, 2010. "Competition and cooperation in markets. The experimental case of a winner-take-all setting," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 163-170, April.
  2. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.

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