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Risk-Taking Tournaments: Theory and Experimental Evidence

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  • Nieken, Petra

    (University of Bonn)

  • Sliwka, Dirk

    (University of Cologne)

Abstract

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.

Suggested Citation

  • Nieken, Petra & Sliwka, Dirk, 2008. "Risk-Taking Tournaments: Theory and Experimental Evidence," IZA Discussion Papers 3400, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3400
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    References listed on IDEAS

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    More about this item

    Keywords

    risk-taking; competition; tournaments; experiment;
    All these keywords.

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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