TY  - JOUR
AU  - Schwarz,Michael
AU  - Severinov,Sergei
TI  - Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15136
PY  - 2009
Y2  - July 2009
UR  - http://www.nber.org/papers/w15136
L1  - http://www.nber.org/papers/w15136.pdf
N1  - Author contact info:
Michael Schwarz
Yahoo! Research
2397 Shattuck Ave
Berkeley, CA 94704
Fax: 510/704-2401
E-Mail: mschwarz@yahoo-inc.com

Sergei Severinov
997-1873 East Mall
Vancouver, British Columbia
V6T1Z1
E-Mail: sseverinov@gmail.com
AB  - In this paper we study "investment tournaments," a class of decision problems that involve gradual allocation of investment among several alternatives whose values are subject to exogenous shocks. The decision-maker's payoff is determined by the final values of the alternatives. An important example of career tournaments motivating our research is the career choice problem, since a person choosing a career often starts by investing in learning several professions. We show that in a broad range of cases it is optimal for the decision-maker in each time period to allocate all resources to the most promising alternative. We also show that in tournaments for a promotion the agents would rationally put forth a higher effort in an early stage of the tournament in a bid to capture a larger share of employer's investment, such as mentoring.
ER  -