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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. Haugen, Robert A & Senbet, Lemma W, 1981. "Resolving the Agency Problems of External Capital through Options," Journal of Finance, American Finance Association, vol. 36(3), pages 629-47, June.
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