Try your best or risk it all? An experimental study of competition, effort, and risk-taking

Abstract: While competition is praised as a means to increase effort, it may also give rise to negative externalities or trade-offs from increased risk-taking. Examining these effects, this thesis studies whether competition affects risk-taking and effort. To do so, we identify the impact of competition by isolating the effect of simultaneous actions aimed to gain a rival good (competitive incentives), from that of the simple presentation of a situation as competitive (competitive framing). We employ an experimental design where subjects' choices of effort and risk-levels are elicited in three randomised treatment groups where we manipulate the presence of each aspect of competition. In contrast to theoretical predictions and much of the experimental literature, we find no evidence that either incentives or framing impact risk-taking or effort, and no evidence of any correlation between the two. We also examine potential heterogeneity in responses to competition in three potential channels -- gender, overconfidence, and risk-aversion -- and find competitive incentives to increase effort among overconfident individuals. We identify no further evidence on differential responses to competition, for either effort or risk-taking. Overall, our results suggest choices of effort and risk-taking are on average no different in or outside competition.