Competition with Skill and Luck (original) (raw)

Abstract

Many decisions that people make are driven by the concerns for social ranking. We study experimentally how strong the social ranking preferences are and what characteristics of others influence the perceived ranking. In our experiment the subjects play two games against the computer: a game of skill and a game of luck. After each game the participants observe the winnings of everybody in the group. Each subject has a possibility to reduce the winnings of one other person at a cost to himself. We find that the majority of subjects use this costly option. More importantly, the decisions to subtract money depend on whether the game of skill or luck was played. The pattern of subtractions suggests that winnings made with skill are used as a proxy for social significance and are envied, whereas money won by luck do not convey such a signal. JEL classification: C02, D81.

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