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Risk management with tournament incentives

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  • Balsdon Edmund M.

    (Associate Professor, Department of Economics, San Diego State University, San Diego, CA 92182-4485, USA)

Abstract

The convex payoff structure in professional golf rewards scoring volatility, giving rise to player types who succeed in spite of higher average scoring. The same risk incentives should influence all players to adjust risk strategies at key moments in tournaments when payoffs either crystallize or become particularly convex. This paper develops a simple theoretical framework, then explores the empirical evidence for strategic risk adjustment by players over the 2003–2012 PGA Tour seasons. Findings suggest that players respond measurably on average to risk incentives around the cutline, but much less so (if at all) to leaderboard position on the closing holes of a tournament. Both the payoff to risk and the technical capacity of players to add or subtract risk are estimated. Analysis of individual players indicates that some elite players are more risk responsive. Bias (e.g., loss aversion) is discussed along with other possible explanations for the apparent lack of risk response over the closing holes of a tournament.

Suggested Citation

  • Balsdon Edmund M., 2013. "Risk management with tournament incentives," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 9(4), pages 301-317, December.
    • Handle: RePEc:bpj:jqsprt:v:9:y:2013:i:4:p:301-317:n:6
    DOI: 10.1515/jqas-2013-0036
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    3. Nieken, Petra & Sliwka, Dirk, 2010. "Risk-taking tournaments - Theory and experimental evidence," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 254-268, June.
    4. Devin G. Pope & Maurice E. Schweitzer, 2011. "Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes," American Economic Review, American Economic Association, vol. 101(1), pages 129-157, February.
    5. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
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    Cited by:

    1. Daniel C. Hickman & Craig Kerr & Neil Metz, 2019. "Rank and Performance in Dynamic Tournaments: Evidence From the PGA Tour," Journal of Sports Economics, , vol. 20(4), pages 509-534, May.
    2. Daniel F. Stone & Jeremy Arkes, 2016. "Reference Points, Prospect Theory, and Momentum on the PGA Tour," Journal of Sports Economics, , vol. 17(5), pages 453-482, June.

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