Selection of risk and effort levels among low-stakes players : a case study in online poker

Firms pay workers using a variety of different pay structures. The structure that governs executive pay in many instances is a tournament pay structure. This paper examines the applicability of a tournament pay structure to lower wage workers by examining the effort and risk responses of players to tournament incentives and the role these responses play in determining the tournament’s outcome. Players from 19 different tournaments are observed on a hand by hand basis. It is found that players adjust effort and risk taking levels but only in response to certain incentives. This study finds evidence that tournaments are a viable pay structure for low wage workers under certain conditions