A Puncher’s chance: Expected gain and risk taking in a market for superstars

Abstract

Do policies that decrease potential earnings at the top of the income distribution induce agents to alter their risktaking behavior? To answer this question I collect data on Mixed Martial Arts pomotions. I exploit the fact that one promotion introduced such a policy, while its competitor did not. Using a standard Difference-in-Differences analysis, I find that fighters in the promotion that implemented the policy take significantly less risks after its inception. On top of being statistically significant, the effect is also economically significant: the decrease in frequency of risk-taking ranges from 10% to 26% in the treatment group.