The aggregate impacts of tournament incentives in experimental asset markets

Julia Henker, Debapriya Paul, Sian Owen

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)
231 Downloads (Pure)


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.
Original languageEnglish
Pages (from-to)441-476
Number of pages36
JournalExperimental Economics
Issue number2
Early online date3 Feb 2018
Publication statusPublished - 15 Jun 2019


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