Equity Stakes and Exit: An Experimental Approach to Decomposing Exit Delay

Elfenbein, Daniel W.; Knott, Anne Marie; Croson, Rachel

doi:10.2139/ssrn.2406138

Cited by 1 publication

(1 citation statement)

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“…In dynamic tournaments, this suggests that contestants' biased beliefs could be a second behavioral mechanism that should affect effort choices—that is, if former leaders believe that winning the tournament is more attainable for them than for equally placed competitors who have never led. This could happen if competitors update their beliefs asymmetrically (Elfenbein, Knott, & Croson, 2017) rather than symmetrically (Casas‐Arce & Martínez‐Jerez, 2009).…”

Section: Theory Developmentmentioning

confidence: 99%

Better to have led and lost than never to have led at all? Lost leadership and effort provision in dynamic tournaments

Gutierrez

Obłój

Frank

2020

Strategic Management Journal

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Research Summary In this paper, we develop and test a behavioral theory of lost leadership. Using insights from the literature on goals as reference points and goal‐setting theory, we predict that former leaders exert more effort compared to otherwise identical competitors. We test this prediction using two contexts. The first data comes from an educational business simulation game. The second setting draws on field data from a 2‐month banking sales contest. We find that provision of effort increases following the loss of leadership. We also explore whether past leaders exert more effort in general or shift effort from other, potentially less‐salient goals. We find evidence of both mechanisms. Finally, investigating the temporal effects, we find that having been a leader has an attenuating effect on subsequent behavior. Managerial Summary Many competitions—such as sports championships, sales contests, idea‐sourcing challenges, and competitions for promotions—can be understood as dynamic tournaments, in which rivals rise and fall in the provisional rankings as they compete over time for a terminal prize. This performance volatility can have important consequences for contestants' behavior. Focusing on the event of lost leadership, we show that former leaders try harder: those that are displaced from a prize‐eligible position exert more effort in subsequent rounds, compared with identically placed rivals who have never led. Former leaders provide more effort overall, and also shift attention away from other tasks. Our results, which suggest that setbacks can be motivational, have implications for the optimal design of dynamic competitions.

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Section: Theory Developmentmentioning

confidence: 99%