Peer Information and Risk-taking under Competitive and Non-competitive Pay Schemes / Philip Brookins, Jennifer Brown, Dmitry Ryvkin.

Format:

Book

Author/Creator:

Brookins, Philip.

Contributor:

National Bureau of Economic Research.

Brown, Jennifer.

Ryvkin, Dmitry.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22486.

NBER working paper series no. w22486

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

Incentive schemes that reward participants based on their relative performance are often thought to be particularly risk-inducing. Using a novel, real-effort task experiment in the laboratory, we find that the relationship between incentives and risk-taking is more nuanced and depends critically on the availability of information about peers' strategies and outcomes. Indeed, we find that when no peer information is available, relative rewards schemes are associated with significantly less risk-taking than non-competitive rewards. In contrast, when decision-makers receive information about their peers' actions and/or outcomes, relative incentive schemes are associated with more risk-taking than non-competitive schemes. The nature of the feedback--whether subjects receive information about peers' strategies, outcomes, or both--also affects risk-taking. We find no evidence that competitors imitate their peers when they face only feedback about other subjects' risk-taking strategies. However, decision-makers take more risk when they see the gaps between their performance score and their peers' scores grow. Combined feedback about peers' strategies and performance--from which subjects may assess the overall relationship between risk-taking and success--is associated with more risk-taking when rewards are based on relative performance; we find no similar effect for non-competitive rewards.

Notes:

Print version record

August 2016.