Risk taking in tournaments

Abstract

Tournament theory provides important insights into organizational reward systems. It examines the incentive properties of reward systems based on rank‐order rather than absolute individual performance. Tournament theory may explain the pattern of managerial pay. It may also explain risk‐taking behavior by mutual fund managers. We use data from the PGA tour to examine the pattern of risk‐taking by professional golfers in an explicit tournament. The PGA tour provides a natural laboratory where such behavior can be studied. Our evidence shows that behavior by players in golf tournaments is consistent with the predictions of tournament theory.

Citation

Melton, M. and Zorn, T.S. (2000), "Risk taking in tournaments", Managerial Finance, Vol. 26 No. 7, pp. 52-62. https://doi.org/10.1108/03074350010766792