Risk Taking in Winner-Take-All Competition
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 taking risk.Download Info
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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 233.Length:
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:trf:wpaper:233
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Related research
Keywords: Tournaments; Competition; Risk-Taking; Experiment;Other versions of this item:
- Matthias Kräkel & Petra Nieken & Judith Przemeck, 2008. "Risk Taking in Winner-Take-All Competition," Bonn Econ Discussion Papers bgse7_2008, University of Bonn, Germany.
- 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-2008-04-29 (All new papers)
- NEP-COM-2008-04-29 (Industrial Competition)
- NEP-EXP-2008-04-29 (Experimental Economics)
- NEP-UPT-2008-04-29 (Utility Models & Prospect Theory)
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Ottone, Stefania & Ponzano, Ferruccio, 2010. "Competition and cooperation in markets. The experimental case of a winner-take-all setting," The Journal of Socio-Economics, Elsevier, vol. 39(2), pages 163-170, April.
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