Risk Taking in Asymmetric Tournaments
University of Bonn - Economic Science Area; Institute for the Study of Labor (IZA)
University of Cologne - Department of Business Administration and Human Resource Management; Institute for the Study of Labor (IZA)
August 1, 2002
GEABA Working Paper No. 02-08
A tournament is examined in which two agents with different abilities choose efforts as well as risks. According to the previous literature, the more (less) able agent should choose a low (high) risk strategy, because the first one does not want to imperil his favorable position, whereas the last one can only gain by increasing risk. We show that this is not necessarily true. Risk taking affects equilibrium efforts as well as winning probabilities. Depending on both effects diverse equilibria are possible. For example, the low and the high ability agent may both choose high risks or both choose low risks.
Number of Pages in PDF File: 25
Keywords: effort effect, likelihood effect, risk taking, tournament
JEL Classification: D23, J3, M12
Date posted: May 5, 2002
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