Risk-taking tournaments – Theory and experimental evidence

Abstract

a b s t r a c tWe 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.

Leading-Effect vs. Risk-Taking in Dynamic Tournaments: Evidence from a Real-Life Randomized Experiment

“…As the correlation between contestants'outcomes of risky strategies is rather high in soccer 7 we show that risk choices are constant and do not depend on past performance. This result is in line with the theoretical predictions by Nieken and Sliwka (2010). We then test for leading-e¤ects given constant risk choices and …nd no evidence of a signi…cant e¤ect.…”

“…For example, both agents may choose a high or low risk strategy. Nieken and Sliwka (2010) analyze a static model in which a leading player and a lagging player decide between risky and safe strategies. They show that the decisions depend on the correlation between contestants' outcomes of risky strategies.…”

“…Therefore, we must …rst understand what type of model drives teams'risk choices. As shown by Nieken and Sliwka (2010), if the correlation between contestants'outcomes of risky strategies is low, then there is an incentive for the team lagging behind to increase risk. If this correlation is high, teams tend to copy the rival's strategy more often.…”

Career Onion: Peeling off the layers for Occupational Preferences and Career Aspirations

“…Since then, it has stretched out to a wide range of fields including law [47], ecology [48], psychology [49] and finance [50] and more recently it has extended and fanned out to management literature, to help explain compensation structures [51].…”

“…As the name suggests, a tournament refers to a contest where players play for a prize that is bestowed based on relative rank [47][55] rather than on the absolute performance of the actors in the competition [56], sometimes, a two player model [57] or sometimes incorporating multiple players in the organization. The rewards are extrinsic in nature i.e.…”