Winning ways: How rank-based incentives shape risk-taking decisions

Dawei Fang (), Changxia Ke (), Greg Kubitz (), Yang Liu (), Thomas Noe () and Lionel Page ()
Additional contact information
Dawei Fang: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden, https://www.gu.se/handelshogskolan/nationalekonomi-statistik
Changxia Ke: School of Economics and Finance, Queensland University of Technology
Greg Kubitz: School of Economics and Finance, Queensland University of Technology
Yang Liu: Faculty of Business and Economics, University of Melbourne
Thomas Noe: Saıd Business School & Balliol College, University of Oxford
Lionel Page: School of Economics, University of Queensland

No 855, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Risk-taking spurred by rank-based contest rewards can have enormous consequences, from breakthrough innovations in research competitions to hedge fund collapses engendered by risky bets aimed at raising league-table rankings. This paper provides a novel theoretical and experimental framework of rank-motivated risk-taking that both allows for complex prize structures and permits participants to make arbitrary mean-preserving changes to their random performance. As predicted by our theory, participants choose positively skewed performance under highly convex prize schedules and negatively skewed performance under concave ones. Convexifying the prize schedule or increasing competition for identical winner prizes induces riskier and more skewed performance.

Keywords: rank incentives; risk taking; skewness; contest structure (search for similar items in EconPapers)
JEL-codes: C72 C91 D74 D81 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2025-05-07
New Economics Papers: this item is included in nep-exp, nep-hrm and nep-spo
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