Max Planck Institute for Research
on Collective Goods
D-53113 Bonn, Germany
Institutional Affiliation: Max Planck Institute for Research on Collective Goods
NBER Working Papers and Publications
|August 2016||Peer Information and Risk-taking under Competitive and Non-competitive Pay Schemes|
with , : w22486
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 pe...