Expectation-Based Loss Aversion and Rank-Order Tournaments∗

Many insights regarding rank-order tournaments rest upon contestants’ behavior in symmetric equilibria. As shown by Gill and Stone (2010), however, symmetric equilibria may not exist if contestants are expectation-based loss averse and have choice-acclimating expectations. We show that under choice-unacclimating—i.e., fixed— expectations both symmetric and asymmetric equilibria exist for all degrees of loss aversion. Importantly, a symmetric equilibrium always prevails if players follow their preferred credible plan and concerns for psychological gain-loss utility do not strongly outweigh concerns for material utility. Hence, for fixed expectations a focus on symmetric equilibria seems justifiable even if contestants are expectation-based loss averse.