Risk taking and investing in electoral competition

We analyze a two-player electoral contest game between a challenger and an incumbent. First, the challenger decides whether to choose a high-risk campaign (e.g., risky platforms, negative campaigning, an interactive Web technology) or a less risky one. In a second stage, both the challenger and the incumbent raise funds and invest in the electoral contest. The politicians differ in their fund-raising costs. According to theory, a high-cost challenger should choose high risk (gambling for resurrection). If the benefit of winning is sufficiently large, a low-cost challenger should take high risk either to discourage the incumbent or to prevent intense campaigning. Both effects are based on the fact that high risk campaigning reduces incentives to invest in the contest. In case of a rather small benefit of winning, a low-cost challenger should prefer low risk to avoid jeopardizing his competitive advantage. Our experimental findings show that gambling for resurrection plays a role. Taking low risk to preserve a competitive advantage is strongly supported by the data. However, reactions of low-cost challengers when facing high benefits of winning are heterogeneous.