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Risk Taking in Winner-Take-All Competition


  • Kräkel, Matthias
  • Nieken, Petra
  • Przemeck, Judith


We analyze a two-stage game between two heterogeneous players. At stage one, common risk is chosen by one of the players. At stage two, both players observe the given level of risk and simultaneously invest in a winner-take-all competition. The game is solved theoretically and then tested by using laboratory experiments. We find three effects that determine risk taking at stage one - an effort effect, a likelihood effect and a reversed likelihood effect. For the likelihood effect, risk taking and investments are clearly in line with theory. Pairwise comparison shows that the effort effect seems to be more relevant than the reversed likelihood effect when taking risk.

Suggested Citation

  • Kräkel, Matthias & Nieken, Petra & Przemeck, Judith, 2008. "Risk Taking in Winner-Take-All Competition," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 233, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:233

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    References listed on IDEAS

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    Cited by:

    1. Ottone, Stefania & Ponzano, Ferruccio, 2010. "Competition and cooperation in markets. The experimental case of a winner-take-all setting," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 163-170, April.
    2. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.

    More about this item


    Tournaments; Competition; Risk-Taking; Experiment;

    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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