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Risk Taking in Selection Contests

Author

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  • Hvide, H.K.
  • Kristiansen, E.G.

Abstract

We study selection contests in which the strategic variable is degree of risk rather than amount of effort. The selection efficiency of such contests is examined. We show that the selection efficiency of a contest may be improved by limiting the competition in two ways; a) by having a small number of contestants, and b) by restricting contestant quality. The results may contribute to the understanding of phenomena like promotion processes in large firms, selection of fund managers and research tournaments.

Suggested Citation

  • Hvide, H.K. & Kristiansen, E.G., 1999. "Risk Taking in Selection Contests," Papers 5-99, Tel Aviv.
  • Handle: RePEc:fth:teavfo:5-99
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Margaret A. Meyer, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 15-41.
    3. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
    4. Warneryd, Karl, 2002. "Rent, risk, and replication: Preference adaptation in winner-take-all markets," Games and Economic Behavior, Elsevier, vol. 41(2), pages 344-364, November.
    5. 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.
    6. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    7. Dekel, Eddie & Scotchmer, Suzanne, 1999. "On the Evolution of Attitudes towards Risk in Winner-Take-All Games," Journal of Economic Theory, Elsevier, vol. 87(1), pages 125-143, July.
    8. Schlicht, Ekkehart, 1988. "Promotions, Elections, and Other Contests: Comment on Sherwin Rosen," Munich Reprints in Economics 3170, University of Munich, Department of Economics.
    9. Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 867-881, August.
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    More about this item

    Keywords

    RISK ; STATISTICAL ANALYSIS ; ENTERPRISES;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D29 - Microeconomics - - Production and Organizations - - - Other
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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