Responses to risk in tournaments
Due to their inefficient use of information, promotion incentives, which can be modeled as tournaments, can induce sub-optimal actions on the part of managers. This is a problem for firms because it leads to choices that do not maximize profit. This also can pose interpretation and comparison problems for research studies that employ tournament incentives. We demonstrate a situation where tournament incentives eliminate the effects of project risk on managers' decisions as concerns with winning take precedence over concerns of maximizing expected profit. We also report the results of an experiment and find actual behavior to be fairly well explained by theoretical predictions. However, we find systematic deviations that lead to decisions that are more consistent with profit maximization than the economic theory predicts.
Year of publication: |
2011
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Authors: | Rankin, Frederick W. ; Sayre, Todd L. |
Published in: |
Accounting, Organizations and Society. - Elsevier, ISSN 0361-3682. - Vol. 36.2011, 1, p. 53-62
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Publisher: |
Elsevier |
Saved in:
Online Resource
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