Experimental Comparison of Multi-Stage and One-Stage Contests

The George L. Argyros School of Business and Economics, Chapman University, 1 University Drive, Orange, CA 92866, USA
Games and Economic Behavior (Impact Factor: 0.83). 03/2010; 68(2):731-747. DOI: 10.1016/j.geb.2009.08.001
Source: RePEc


This article experimentally studies a two-stage elimination contest and compares its performance with a one-stage contest. Contrary to the theory, the two-stage contest generates higher revenue than the equivalent one-stage contest. There is significant over-dissipation in both stages of the two-stage contest and experience diminishes over-dissipation in the first stage but not in the second stage. Our experiment provides evidence that winning is a component in a subject's utility. A simple behavioral model that accounts for a non-monetary utility of winning can explain significant over-dissipation in both contests. It can also explain why the two-stage contest generates higher revenue than the equivalent one-stage contest.

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    • "The question is particularly suited to experimental investigation. In part, this is because the influence of competition in this respect is often much larger than the standard rational choice models predict, suggesting that competition has some additional, non-standard motivational power that can be fruitfully examined in the laboratory (see, for example, Sheremeta, 2010 for evidence on behavior in contests). In addition, there are two common but conflicting intuitions about how this specific motivational power of competition might be affected by inequality; and experiments might help settle this dispute. "
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    DESCRIPTION: Teams often suffer from a free rider problem with respect to individual contributions. That putting teams into competition with each other can mitigate this problem is an important recent insight. However, we know little about how inequality in endowment between teams might influence this beneficial effect from competition. We address this question with an experiment where teams contribute to a public good that then determines their chances of winning a Tullock contest with another team. The boost to efforts from competition disappears when inequality is high. This is mainly because the ‘rich’ ‘disengage’: they make no more contribution to a public good than they would when there is no competition. There is evidence that the ‘poor’ respond to moderate inequality ‘doggedly’, by expending more effort compared to competition with equality, but this ‘doggedness’ disappears too when inequality is high.
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    • "We renormalize the effort levels in Sheremeta (2010) from the original [0] [120] scale onto our [0] [80] scale. We take the session as the unit of independent observation; Sheremeta (2010) conducted 6 sessions and our data contains 3. A Mann-Whitney-Wilcoxon (MWW) test on the null hypothesis that the median effort by session is equal between the studies cannot be rejected (p-value 0.36), and a MWW test on the null hypothesis that the standard deviation of effort by session is equal between the studies also cannot be rejected (p-value 0.20). 7 Cutting the experiment in two at the midpoint here, and in the earlier regressions, is arbitrary. "
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    ABSTRACT: We study experimentally the effects of cost structure and prize allocation rules on the performance of rent-seeking contests. Most previous studies use a lottery prize rule and linear cost, and find both overbidding relative to the Nash equilibrium prediction and significant variation of efforts, which we term ‘overspreading.’ We investigate the effects of allocating the prize by a lottery versus sharing it proportionally, and of convex versus linear costs of effort, while holding fixed the Nash equilibrium prediction for effort. We find the share rule results in average effort closer to the Nash prediction, and lower variation of effort. Combining the share rule with a convex cost function further enhances these results. We can explain a significant amount of non-equilibrium behavior by features of the experimental design. These results contribute towards design guidelines for contests based on behavioral principles that take into account implementation features of a contest.
    Games and Economic Behavior 09/2014; 87. DOI:10.1016/j.geb.2014.05.004 · 0.83 Impact Factor
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    • "Explanations of overbidding include hypotheses that experimental subjects ² derive a non-monetary utility from winning, on top of monetary incentives to win a prize (e.g., Sheremeta, 2010, Chen et al., 2011), ² exhibit behavior sensitive to the experimental design (Chowdhury et al., 2012), ² have spiteful preferences and inequality aversion (e.g., Herrmann and Orzen, 2008; Bartling et al., 2009; Balafoutas et al., 2012), ² have a predisposition to make mistakes (Potters et al., 1998, Lim et al., 2012), ² rely on non-linear probability weighting to make their bids (Baharad and Nitzan, 2008, Amaldoss and Rapoport, 2009, Du¤y and Matros, 2012), and ² exhibit loss aversion (Kong, 2008). "
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    ABSTRACT: The paper examines the effect of ambiguity on contests where multiple parties expend resources to win a prize. We develop a model where contenders perceive ambiguity about their opponents' strategies and determine how perceptions of ambiguity and attitudes to ambiguity affect equilibrium choice. The paper also investigates how equilibrium under ambiguity is related to behavior where contenders have expected utility preferences. Our model can explain experimental results such as overbidding and overspreading relative to Nash predictions.
    SSRN Electronic Journal 06/2014; DOI:10.2139/ssrn.2458196
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