Experimental Economics

, Volume 22, Issue 2, pp 441–476 | Cite as

The aggregate impacts of tournament incentives in experimental asset markets

  • Debapriya Jojo PaulEmail author
  • Julia Henker
  • Sian Owen
Original Paper


We examine how rewards and penalties under tournament incentives impact price behaviour in experimental asset markets. Adding a penalty to a reward-only contract, or a reward to a penalty-only contract, changes the traders’ behaviour. The experimental markets with adjusted contracts experience less trading, but longer-lived and larger bubbles. This observed effect of penalties is consistent with herd-driven behaviour under relative performance evaluation, while the effect of rewards reflects the influence of the convexity of bonuses. However, these effects dissipate with trader experience. Our findings contribute to the debate attributing market instability to incentive structures in the finance industry.


Tournaments Relative performance evaluation Bubbles Experimental asset market Convex incentives Herding 

JEL Classification

C92 G12 J33 M52 



The authors would like to thank two anonymous referees and Charles Noursair (the editor) for suggestions. We also thank David Feldman, Thomas Henker, Jeremy Clark, Kenan Kalayci and session participants at the 2015 Experimental Finance Meeting, the 2015 European Financial Management Association meeting, and the UNSW brown bag and seminar participants at the University of Maine and the University of Tasmania for helpful comments. We gratefully acknowledge financial support provided by the Australian Research Council (ARC DECRA Grant Number: DE120101523).

Supplementary material

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Supplementary material 1 (PDF 2232 kb)
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Supplementary material 2 (PDF 2220 kb)
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Supplementary material 3 (PDF 3932 kb)
10683_2018_9562_MOESM4_ESM.pdf (136 kb)
Supplementary material 4 (PDF 136 kb)


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Copyright information

© Economic Science Association 2018

Authors and Affiliations

  1. 1.Department of FinanceLondon School of Economics and Political ScienceLondonUK
  2. 2.Faculty of BusinessBond UniversityRobinaAustralia
  3. 3.Performance Audit TeamAudit Office of New South WalesSydneyAustralia

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