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| Author: | Rankin, F.W. Sayre, T.L. |
| Title: | Responses to risk in tournaments |
| Journal: | Accounting, Organizations and Society
2011 : JAN, VOL 36:1 p. 31-52 |
| Index terms: | incentives managers PROFIT behavioural science |
| Freeterms: | profit maximization |
| Language: | eng |
| Abstract: | Due to their inefficient use of information, promotion incentives, which can be modeled as tournaments, can induce sub-optimal actions on the part of managers. This is a problem for companies since it leads to choices which do not maximize profit. This paper demonstrates a situation where tournament incentives eliminate the impact of project risk on managers' decisions as concerns with winning take precedence over concerns of maximizing expected profit. The paper presents an experiment associated to this issue. The finding is systematic deviations which lead to decisions that are more consistent with profit maximization than the economic theory predicts. |
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