Better to Have Led and Lost than Never to Have Led at All? Competitive Dethronement, the Endowment Effect, and Risk Taking

Tomasz Obloj (), Cédric Gutierrez and Frank Douglas

No 1240, HEC Research Papers Series from HEC Paris

Abstract: In this paper, we develop a theoretical model and offer a first empirical test of how competitive dethronement affects managerial risk taking. Drawing on the mechanism of endowment effect and reference-dependent utility theory, we predict that former market leaders take more risks compared to, otherwise identical, competitors. We empirically test this prediction using two contexts allowing us to use different methods to operationalize risk. The first setting draws on field data from a two-month banking sales contest. The second, quasi-laboratory, data comes from an educational game. Consistent with model’s prediction, we find that dethronement is associated with increased risk taking but that the endowment effect leading to such response decays over time. In contrast, a mere decline in performance ranking does not have the same effect.

Keywords: Competitive Dethronement; Endowment Effect; Risk Taking (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2017-11-01
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1240

DOI: 10.2139/ssrn.3078017

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