Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2012/13: Myopic Risk Taking in Tournaments

Kristoffer Eriksen () and Ola Kvaløy ()
Additional contact information
Kristoffer Eriksen: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Ola Kvaløy: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway

Abstract: There is a common notion that incentive schemes in the financial industry trigger myopia and risk-taking. In some sense this contrasts with the concept of myopic loss aversion (MLA), which implies that myopia mitigates risk-taking. A number of experimental studies support the MLA-hypothesis by showing that people take less risk the more frequently their investments are evaluated. In this paper we show experimentally that if subjects are exposed to tournament incentives, they take more risk the more frequently investments are evaluated.

Keywords: tournaments

JEL-codes: A10

22 pages, July 17, 2012

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