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Prize and Risk-Taking Strategy in Tournaments: Evidence from Professional Poker Players

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  • Lee, Jungmin

    ()
    (Sogang University)

Abstract

This study examines whether people optimally respond to prize incentives for risk taking in tournaments. I exploit the television game show World Poker Tour as a natural experiment. The results show that professional players strategically choose the degree of risk taking depending on the incentives implied by the prize structure they face. I find that they are more sensitive to losses than to gains.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1345.

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Length: 25 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1345

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Keywords: risk; tournament; poker;

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References

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  1. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  2. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1120-41, December.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(4), pages 606-28, October.
  5. Hans K. Hvide, 2000. "Tournament Rewards and Risk Taking," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0163, Econometric Society.
  6. Chevalier, J. & Ellison, G., 1996. "Risk Taking by Mutual Funds as a Response to Incentives," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 12(2), pages 155-79, April.
  8. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  9. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(1), pages 7-63, March.
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Cited by:
  1. Christian Grund & Oliver Gürtler, 2005. "An Empirical Study on Risk Taking in Tournaments," Bonn Econ Discussion Papers, University of Bonn, Germany bgse6_2005, University of Bonn, Germany.
  2. Grund, Christian & Höcker, Jan & Zimmermann, Stefan, 2010. "Risk Taking Behavior in Tournaments: Evidence from the NBA," IZA Discussion Papers 4812, Institute for the Study of Labor (IZA).

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