Risk Taking in NASCAR: an Examination of Compensating Behavior and Tournament Theory in Racing (National Association for Stock Car Auto Racing Inc.‪)‬

ABSTRACT NASCAR racing provides an interesting backdrop to test two theories about incentives and behavior. The compensating behavior theory predicts that if drivers race under safer conditions, they are likely to undertake riskier behavior. Using data from the NEXTEL Cup Series, the paper finds that once drivers were required to wear a new safety device, there was a change in the percentage of miles run under caution. That is, racers drove more aggressive and riskier after October 2001. Tournament theory predicts that non-linear rewards promote more competitive behavior. Starting in 2004, the method for deciding the NEXTEL season champion was changed to encourage racing throughout the season. To compete for the season championship, drivers are motivated to drive safely and stay in each of the first 26 races. After that point only the top ten drivers compete for the series championship, racing to win the non-linear season-ending awards. As a result, we expect racers to drive riskier in the second part of the season. The paper compares NEXTEL driving behavior across three NASCAR series (the other two not competing under the new structure). The results support the theory that NEXTEL Cup Series racers do drive riskier over the last portion of the season. There is not a similar change in the behavior of drivers in the other two series.