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The Effect of Competition on Risk Taking in Contests

Author

Listed:
  • Lorenzo Spadoni

    (Department of Economics and Statistics, University of Siena, 53100 Siena, Italy)

  • Jan Potters

    (Department of Economics and CentER, Tilburg University, 5000 LE Tilburg, The Netherlands)

Abstract

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 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 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.

Suggested Citation

  • Lorenzo Spadoni & Jan Potters, 2018. "The Effect of Competition on Risk Taking in Contests," Games, MDPI, vol. 9(3), pages 1-18, September.
    • Handle: RePEc:gam:jgames:v:9:y:2018:i:3:p:72-:d:170921
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    References listed on IDEAS

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