Risk-Taking Tournaments: Theory and Experimental Evidence
31 Pages Posted: 23 May 2008
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: Suggested Citation
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