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Risk taking and investing in electoral competition

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  • Kräkel, Matthias
  • Nieken, Petra
  • Przemeck, Judith
Abstract
We analyze a two-player electoral contest game between a challenger and an incumbent. First, the challenger decides whether to choose a high-risk campaign (e.g., risky platforms, negative campaigning, an interactive Web technology) or a less risky one. In a second stage, both the challenger and the incumbent raise funds and invest in the electoral contest. The politicians differ in their fund-raising costs. According to theory, a high-cost challenger should choose high risk (gambling for resurrection). If the benefit of winning is sufficiently large, a low-cost challenger should take high risk either to discourage the incumbent or to prevent intense campaigning. Both effects are based on the fact that high risk campaigning reduces incentives to invest in the contest. In case of a rather small benefit of winning, a low-cost challenger should prefer low risk to avoid jeopardizing his competitive advantage. Our experimental findings show that gambling for resurrection plays a role. Taking low risk to preserve a competitive advantage is strongly supported by the data. However, reactions of low-cost challengers when facing high benefits of winning are heterogeneous.

Suggested Citation

  • Kräkel, Matthias & Nieken, Petra & Przemeck, Judith, 2014. "Risk taking and investing in electoral competition," European Journal of Political Economy, Elsevier, vol. 33(C), pages 98-120.
    • Handle: RePEc:eee:poleco:v:33:y:2014:i:c:p:98-120
    DOI: 10.1016/j.ejpoleco.2013.12.003
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    4. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    5. Usvitskiy, Alexander, 2022. "Strategic risk-taking in dynamic contests," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 511-534.
    6. Mueller-Langer Frank & Andreoli-Versbach Patrick, 2017. "Leading-Effect, Risk-Taking and Sabotage in Two-Stage Tournaments: Evidence from a Natural Experiment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 237(1), pages 1-28, February.
    7. Anbarci, Nejat & Arin, K. Peren & Kuhlenkasper, Torben & Zenker, Christina, 2018. "Revisiting loss aversion: Evidence from professional tennis," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 1-18.

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    More about this item

    Keywords

    Electoral competition; Gambling for resurrection; Risk taking; Tournaments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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