Tournaments also promote risk seeking behavior. In essence, the compensation scheme becomes more like a call option on performance (which increases in value with increased volatility (cf. options pricing). If you are one of ten players competing for the asymmetrically large top prize, you may benefit from reducing the expected value of your overall performance to the firm in order to increase your chance that you have an outstanding performance (and win the prize). In moderation this can offset the greater risk aversion of agents vs principals because their social capital is concentrated in their employer while in the case of public companies the principal typically owns his stake as part of a diversified portfolio. Successful innovation is particularly dependent on employees' willingness to take risks. In cases with extreme incentive intensity, this sort of behavior can create catastrophic organizational failure. If the principal owns the firm as part of a diversified portfolio this may be a price worth paying for the greater chance of success through innovation elsewhere in the portfolio. If however the risks taken are systematic and cannot be diversified e.g., exposure to general housing prices, then such failures will damage the interests of principals and even the economy as a whole. (cf. Kidder Peabody, Barings, Enron, AIG to name a few). Ongoing periodic catastrophic organizational failure is directly incentivized by tournament and other superstar/winner-take-all compensation systems (Holt 1995). Tournaments represent one way of implementing the general principle of "deferred compensation", which is essentially an agreement between worker and firm to commit to each other. Under schemes of deferred compensation, workers are overpaid when old, at the cost of being underpaid when young. Salop and Salop (1976) argue that this derives from the need to attract workers more likely to stay at the firm for longer periods, since turnover is costly. Alternatively, delays in evaluating the performance of workers may lead to compensation being weighted to later periods, when better and poorer workers have to a greater extent been distinguished. (Workers may even prefer to have wages increasing over time, perhaps as a method of forced saving, or as an indicator of personal development. e.g., Loewenstein and Sicherman 1991, Frank and Hutchens 1993.) For example, Akerlof and Katz 1989: if older workers receive efficiency wages, younger workers may be prepared to work for less in order to receive those later. Overall, the evidence suggests the use of deferred compensation (e.g., Freeman and Medoff 1984, and Spilerman 1986—seniority provisions are often included in pay, promotion and retention decisions, irrespective of productivity.)