The effects of bigger rewards in individual tournaments on efforts and risk taking: evidence from chess

We examine the effects of bigger rewards in individual dynamic tournaments on efforts and risk taking using the three-point rule in chess. Most chess tournaments use the standard rule while some tournaments use the Bilbao rule, which is identical to the three-point rule in soccer: We observe the same pairs of chess players playing under both rules, a research design that fits fixed-effect models. We find the Bilbao rule makes games 33% more decisive, mostly to white players’ advantage, who win 50% more games. We identify two mechanisms why the Bilbao rule works: It encourages players to play longer and discourages them from using drawish openings. These results suggest incentive schemes that provide bigger rewards for better performances work in individual multi-stage tournaments in which efforts and financial rewards are directly linked, and in which strategic interactions among teammates and with competitors are less complex.