The Effect of Competition on Risk Taking in Contests

The Effect of Competition on Risk Taking in Contests

Blog Article

We investigate, theoretically and experimentally, the effect of competition on risk taking in a contest in which players only decide on the level of risk they wish to take.Taking more risk implies a chance of a higher performance, but also implies a higher chance Tracker Accessories of failure.We vary the level of competition in two ways: by varying the number of players (2 players versus 8 players), and by varying the sensitivity of the contest to differences in performance (lottery contest versus Steak Knives all-pay auction).Our results show that there is a significant interaction effect between the two treatments, suggesting that players are particularly prone to take more risks if both the number of players and the sensitivity to performance are higher.