Risk-Taking Tournaments: Theory and Experimental Evidence

31 Pages Posted: 23 May 2008

See all articles by Petra Nieken

Petra Nieken

Chair of Human Resource Management

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Date Written: March 2008

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.

Keywords: tournaments, competition, risk-taking, experiment

JEL Classification: M51, C91, D23

Suggested Citation

Nieken, Petra and Sliwka, Dirk, Risk-Taking Tournaments: Theory and Experimental Evidence (March 2008). IZA Working Paper No. 3400. Available at SSRN: https://ssrn.com/abstract=1136205 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Petra Nieken (Contact Author)

Chair of Human Resource Management ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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