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On the Choice of Risk and Effort in Tournaments—Experimental Evidence

Authors


  • I thank Armin Falk, Oliver Gürtler, Bernd Irlenbusch, Matthias Kräkel, Dirk Sliwka, the participants of the Brown Bag Seminar at the University of Cologne as welll as the participants of the topics course at the University of Bonn, the coeditor and two anonymous referees for helpful comments and suggestions. I also thank Andreas Staffeld for programming the experimental software. Financial support of the Deutsche Forschungsgemeinschaft (DFG,) in particular SFB/TR 15, is gratefully acknowledged.

Abstract

We investigate a simple two-person tournament in a controlled laboratory experiment. Each player chooses between two distributions of random shocks. After observing the overall risk, both players decide simultaneously on their effort. Theory predicts both players should choose the distribution with the higher variance of random shock, as this minimizes equilibrium effort. We show that the effort exerted is sensitive towards risk. The agents exert less effort if the random shock is high. However, agents do not learn to commit themselves by choosing a high risk in our experiment.

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