Competition and risk-taking

In many situations, agents take risks by choosing an action that increases their performance immediately, but that potentially leads to a large loss. The current paper studies how such risk-taking behavior depends on the level of competition that the agents face. We study a tournament model and we f...

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Bibliographic Details
Published in:European economic review 2023-11, Vol.160, p.104592, Article 104592
Main Authors: Gürtler, Oliver, Struth, Lennart, Thon, Max
Format: Article
Language:English
Subjects:
Biathlon
Competition
Incentives
Risk-taking
Tournament
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Summary:In many situations, agents take risks by choosing an action that increases their performance immediately, but that potentially leads to a large loss. The current paper studies how such risk-taking behavior depends on the level of competition that the agents face. We study a tournament model and we find that more intense competition, measured by the number of competitors as well as their relative standing, induces agents to take higher risks. We use a rich panel data set on professional biathlon competitions as well as survey data from professional biathletes to confirm the model predictions. Finally, we discuss implications for organizational decision-making.
ISSN:0014-2921
1873-572X
DOI:10.1016/j.euroecorev.2023.104592