Winners and losers in investment competition – Experimental study

We report the results of lab experiments on investment competition, where all subjects receive their accumulated earnings and the subject with the highest returns earns an additional bonus. We find that ranking is negatively correlated with portfolio risk: when subjects realize that their rank is relatively low, they increase their portfolio risk. This behavior is shared by all subjects in all rankings during all trade periods, regardless of the risk-free rate. Furthermore, in a competition, subjects respond to rank changes, increasing (decreasing) their portfolio risk after experiencing a decrease (increase) in their rating, regardless of their ranking.