Disappointment aversion in tournaments

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...

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Bibliographic Details
Published inManagerial and decision economics Vol. 43; no. 1; pp. 26 - 30
Main Author Wu, Yaoyao
Format Journal Article
LanguageEnglish
Published Chichester Wiley Periodicals Inc 01.01.2022
Subjects
Disappointment
Risk
Tournaments
Tournaments & championships
Workers
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Summary: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.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.3356