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Myopic risk-taking in tournaments

  • Eriksen, Kristoffer W.
  • Kvaløy, Ola

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Gerlinde Fellner & Matthias Sutter, . "Causes, consequences, and cures of myopic loss aversion - An experimental investigation," Working Papers 2008-01, Faculty of Economics and Statistics, University of Innsbruck.
  2. Eriksen, Kristoffer & Kvaløy, Ola & Olsen, Trond, 2008. "Tournaments with price-setting agents," UiS Working Papers in Economics and Finance 2009/5, University of Stavanger.
  3. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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  17. John List & Michael Haigh, 2005. "Do professional traders exhibit myopic loss aversion? An experimental analysis," Artefactual Field Experiments 00052, The Field Experiments Website.
  18. Kristoffer Eriksen & Ola Kvaløy, 2010. "Do financial advisors exhibit myopic loss aversion?," Financial Markets and Portfolio Management, Springer, vol. 24(2), pages 159-170, June.
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  30. repec:dgr:kubcen:200094 is not listed on IDEAS
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