Working Paper: NBER ID: w15136
Authors: Michael Schwarz; Sergei Severinov
Abstract: 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.
Keywords: No keywords provided
JEL Codes: J24; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Resource Allocation (D45) | Payoff Outcomes (G35) |
| Higher Effort in Early Stages (D29) | Larger Share of Employer's Investment (J32) |
| Leading Alternative (Q42) | Resource Allocation (D45) |
| Early Effort (Y20) | Probability of Winning Tournament (C70) |