Disappointment aversion in tournaments

Yaoyao Wu

Managerial and Decision Economics, 2022, vol. 43, issue 1, 26-30

Abstract: Many experiments and field studies indicate that individuals have an asymmetric attitude towards gains versus losses. In this paper, we extend the canonic tournament model by assuming the workers' preferences exhibit disappointment aversion. First, we find the winning prize is first increasing and then decreasing in volatility and the losing prize shows the opposite. Furthermore, when the volatility exceeds a threshold, both the winning and losing prizes are reduced to zero. By contrast, there is no such kink for the risk aversion case. Finally, we find the piece rates always dominate rank‐order tournaments when the workers are disappointment averse.

Date: 2022
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https://doi.org/10.1002/mde.3356

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:43:y:2022:i:1:p:26-30

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