Tournament style incentive systems are those that reward agents in proportion to how they score against a population of similar agents. For example, prize money in golf and tennis tournaments is paid to the top few finishers. Mutual fund managers may be viewed as engaged in an annual tournament in which rankings are produced by a number of observers on a roughly quarterly basis with the annual ( year-end) ranking the most important and influential. Investors follow the rankings and tend to move funds from poor performers to high performers. Since agents' compensation is usually tied to funds under management, what sort of behavior do you anticipate from those who are "losers" in the early rounds or quarterly rankings?

Mid-year losers or laggards can be expected to take on additional risk in an effort to boost their positions in the annual return rankings

The further behind the leaders that a fund manager is, the more aggressively we might expect her to take on additional risk

Both of the above