Going for It: The Adoption of Risky Strategies in Tournaments

*Jennifer Brown
Northwestern University

Jin Li
Northwestern University

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     Last modified: December 1, 2010
     Presentation date: 03/13/2011 12:00 PM in NH 1140, Session C
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Abstract
In many contexts, competitors choose not only their effort, but also the riskiness of their actions. In this paper, we explore the strategic, risk-related decisions of players in tournaments. We present an economic model where competitors consider the performance gap between themselves and their rivals. We test the predictions of the model using shot- and round-level panel data from professional golfers. We find that players tend to take risky actions when the competition is tight and safe actions when the performance gaps are large. We also identify risk contagion and show empirical evidence that top players respond to both the gap between their score and their next nearest rival and the gap between that neighbour and his next nearest rival.