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Risk-taking tournaments - Theory and experimental evidence

  • Nieken, Petra
  • Sliwka, Dirk

We study risk-taking behavior in a simple two person tournament in a theoretical model as well as a laboratory experiment. First, a model is analyzed in which two agents simultaneously decide between a risky and a safe strategy and we allow for all possible degrees of correlation between the outcomes of the risky strategies. We show that risk-taking behavior crucially depends on this correlation as well as on the size of a potential lead of one of the contestants. We find that the experimental subjects acted mostly quite well in line with the derived theoretical predictions.

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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 31 (2010)
Issue (Month): 3 (June)
Pages: 254-268

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Handle: RePEc:eee:joepsy:v:31:y:2010:i:3:p:254-268
Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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  1. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  2. Matthias Kräkel & Dirk Sliwka, 2001. "Risk Taking in Asymmetric Tournaments," Bonn Econ Discussion Papers bgse33_2001, University of Bonn, Germany.
  3. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-64, June.
  4. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  5. Hans K. Hvide, 2000. "Tournament Rewards and Risk Taking," Econometric Society World Congress 2000 Contributed Papers 0163, Econometric Society.
  6. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
  7. Sutter, Matthias & Strassmair, Christina, 2009. "Communication, cooperation and collusion in team tournaments--An experimental study," Games and Economic Behavior, Elsevier, vol. 66(1), pages 506-525, May.
  8. Taylor, Jonathan, 2003. "Risk-taking behavior in mutual fund tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 50(3), pages 373-383, March.
  9. Jeffrey Carpenter & Peter Hans Matthews & John Schirm, 2010. "Tournaments and Office Politics: Evidence from a Real Effort Experiment," American Economic Review, American Economic Association, vol. 100(1), pages 504-17, March.
  10. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
  11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  12. Hvide, H.K. & Kristiansen, E.G., 1999. "Risk Taking in Selection Contests," Papers 5-99, Tel Aviv.
  13. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  14. Alannah Orrison & Andrew Schotter & Keith Weigelt, 2004. "Multiperson Tournaments: An Experimental Examination," Management Science, INFORMS, vol. 50(2), pages 268-279, February.
  15. Anil Gaba & Ajay Kalra, 1999. "Risk Behavior in Response to Quotas and Contests," Marketing Science, INFORMS, vol. 18(3), pages 417-434.
  16. Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
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