This paper uses agent-based simulation to analyze how financial markets are affected by market participants with convex incentives, e.g. option-like compensation. We document that convex incentives are associated with (i) higher prices, (ii) larger variations of prices, and (iii) larger bid-ask...

We investigate the impact of fund managers' tournament incentives on investment strategies and market efficiency, distinguishing between winner-take-all tournaments (WTA), where a minority wins, and elimination contests (EC), where a majority wins. Theoretically, we show that fund managers play...

This paper uses agent-based simulation to analyze how financial markets are affected by market participants with convex incentives, e.g. option-like compensation. We document that convex incentives are associated with (i) higher prices, (ii) larger variations of prices, and (iii) larger bid-ask...

One potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from option-like incentive schemes in financial institutions. By running laboratory asset markets, we investigate the impact of option-like incentives on price formation and trading...