Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 989: Risking Other People’s Money: Experimental Evidence on Bonus Schemes, Competition, and Altruism

Ola Andersson (), Håkan J. Holm (), Jean-Robert Tyran () and Erik Wengström ()
Additional contact information
Ola Andersson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Håkan J. Holm: Lund University
Jean-Robert Tyran: University of Vienna, Postal: and University of Copenhagen
Erik Wengström: Lund University, Postal: and University of Copenhagen

Abstract: We study risk taking on behalf of others in an experiment on a large random sample. The decision makers in our experiment are facing high-powered incentives to increase the risk on behalf of others through hedged compensation contracts or with tournament incentives. Compared to a baseline condition without such incentives, we find that the decision makers respond strongly to these incentives that result in an increased risk exposure of others. However, we find that the increase in risk taking is mitigated by altruistic preferences and pro-social personality traits.

Keywords: Incentives; Competition; Hedging; Risk taking; Social preferences

JEL-codes: C72; C90; D30; D81

49 pages, November 19, 2013

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