Interim Rank, Risk Taking and Performance in Dynamic Tournaments

Abstract

Little is known about the effects of revealing information on relative performance during a dynamic tournament. We empirically study the impact of interim rank on risk taking and performance using data on professionals competing in tournaments for large rewards. As our data allows us to observe both the intended action and the performance of each participant, we can thus measure risk taking and performance separately. We present two key findings. First, risk taking exhibits an inverted-U relationship with interim rank. Revealing information on relative performance induces individuals trailing just behind the interim leaders to take greater risks. Second, competitors systematically underperform when ranked closer to the top, despite higher incentives to perform well. Disclosing information on relative ranking hinders interim leaders.Dynamic tournaments; interim ranking; relative performance; risk taking