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Envy and loss aversion in tournaments

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  • Eisenkopf, Gerald
  • Teyssier, Sabrina

Abstract

Tournaments require a large gap in prizes in order to induce incentives. The resulting unequal distribution suggests that monetary payoffs are not the only motive that determines agents’ decisions. In our experiment we test theoretical predictions about the role of envy and loss aversion in tournaments. Our results confirm that the limitation of inequity between subjects’ payments implies lower effort while the elimination of losses relative to expectations decreases the variance of effort. They suggest that envy and loss aversion drive behavior in tournaments. Moreover, we show that standard theory provides a good explanation for competitive behavior when envy and loss aversion do not play a role in the decision making process.

Suggested Citation

  • Eisenkopf, Gerald & Teyssier, Sabrina, 2013. "Envy and loss aversion in tournaments," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 240-255.
    • Handle: RePEc:eee:joepsy:v:34:y:2013:i:c:p:240-255
    DOI: 10.1016/j.joep.2012.06.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Tournament; Envy; Loss aversion; Experiment;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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