Contests With Heterogeneous Agents (original) (raw)
Related papers
2014
Many competitions require investment of nonrefundable resources, e.g., political campaigns, financial markets, sports or courting rituals. One contestant wins the prize for the invested amount, while all others forfeit their investments without receiving compensation. Frequently, contests are asymmetric, due to differing resources or prize valuations. This could lead weaker contestants to avoid investing, and stronger ones to lower their investment. Two experiments explored the effects of asymmetry between the contestants – arising from their endowments or prizes – on investments. Subjects played both symmetric and asymmetric contests, enabling direct within-subject comparisons. We observed an effect of asymmetry only when it concerned endowments: Subjects invested less when their endowments were asymmetric, whereas (a-)symmetry in the prizes did not influence investments. The changes between consecutive investments can be explained by reactions to the previous outcome (win or loss)...
Effort maximization in asymmetric contest games with heterogeneous contestants
Economic Theory, 2013
Contest rules are setup by administrators that frequently have discretionary power in specifying the details of these rules, i.e., they can bias the contest rules with respect to specific contestants. We derive a contest administrator's optimal bias of the contest rule in closed form for a simple class of n-person contest games. Setting the optimal bias has important implications for the contestants: (i) there is no exclusion of strong players, instead there is (endogenously induced) inclusion of weak contestants; (ii) the contest administrator will optimally level the playing field by encouraging weak contestants, but he will not equalize the contestants' chances unless they are identical; (iii) at least three contestants will be active in the leveled contest game.
Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results
SSRN Electronic Journal, 2000
This study provides a unified framework to compare three canonical forms of competition: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. Performance is affected by random noise, reflecting imperfect information. We derive equilibria and observe outcomes from each contest in a laboratory experiment. Equilibrium and observed efforts are highest in winner-take-all contests. Lotteries and proportional-prize contests have the same Nash equilibrium, but empirically, lotteries induce contestants to choose higher efforts and receive lower, more unequal payoffs. This result may explain why contest designers who seek only to elicit effort offer lumpsum prizes, even though contestants would be better off with proportional rewards.
Existence and Uniqueness of Equilibrium in Asymmetric Contests with Endogenous Prizes
International Game Theory Review, 2013
This paper considers contests in which the efforts of the players determine the value of the prize. Players may have different valuations of the prize and different abilities to convert expenditures to productive efforts. In addition, players may face different financial constraints. This paper presents a proof for the existence and uniqueness of a pure Nash equilibrium in asymmetric contests with endogenous prizes.
Effort Maximization In Contests Under A Balance Constraint
2020
We study all-pay contests with complete information and two heterogeneous contestants who compete for a single prize. The contest is balanced if the di¤erence between the contestantse¤orts is not larger than a given threshold. We show that for every balanced all-pay contest, there is a maximum e¤ort constraint that increases the contestantsexpected total e¤ort, while it is not necessarily increased by a minimum e¤ort constraint.
Contests as selection mechanisms: The impact of risk aversion
Journal of Economic Behavior & Organization
We investigate how individual risk preferences affect the likelihood of selecting the more able contestant within a two-player Tullock contest. Our theoretical model yields two main predictions: First, an increase in the risk aversion of a player worsens her odds unless she already has a sufficiently large advantage. Second, if the prize money is sufficiently large, a less able but less risk averse contestant can achieve an equal or even higher probability of winning than a more able but more risk averse opponent. In a laboratory experiment we confirm both, the non-monotonic impact and the compensating effect of risk aversion on winning probabilities. Our results suggest a novel explanation for the gender gap and the optimality of limited monetary incentives in selection contests.
Journal of Economic Behavior & Organization
This paper examines the evolutionary stability of behaviour in contests where players' participation can be stochastic. We find, for exogenously given participation probabilities, players exert more effort under the concept of a finite-population evolutionarily stable strategy (FPESS) than under Nash equilibrium (NE). We show that there is exante overdissipation under FPESS for sufficiently large participation probabilities, if, and only if, the impact function is convex. With costly endogenous entry, players enter the contest with a higher probability and exert more effort under FPESS than under NE. Importantly, under endogenous entry, overdissipation can occur for all (Tullock) contest success functions, in particular those with concave impact functions.
Overbidding and Heterogeneous Behavior in Contest Experiments
Journal of Economic Surveys, 2013
We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments: (i) overbidding relative to the standard Nash equilibrium prediction and (ii) heterogeneous behavior of ex-ante symmetric contestants. Based on the sample of contest experiments that we review, the median overbidding rate is 72%. We provide different explanations for the overbidding phenomenon, including bounded rationality, utility of winning, other-regarding preferences, probability distortion, and the shape of the payoff function. We also provide explanations for heterogeneous behavior of contestants based on differences in preferences towards winning, inequality, risk and losses, and demographic differences. Furthermore, we suggest mechanisms that can reduce overbidding and induce more homogeneous behavior. Finally, we discuss directions for future research.
Selective incentives and intragroup heterogeneity in collective contests
Journal of Public Economic Theory
A group taking part in a contest has to confront the collective-action problem among its members and devices of selective incentives are possible means of resolution. We argue that heterogeneous prize-valuations in a competing group normally prevent effective use of such selective incentives. To substantiate this claim, we adopt cost sharing as a means of incentivizing the individual group members. We confirm that homogeneous prize valuations within a group result in a cost-sharing rule inducing the first-best individual contributions. As long as the cost-sharing rule is dependent only on the members' contributions, however, such a first-best rule does not exist for a group with intra-group heterogeneity. Our main result clarifies how unequal prize valuations affect the cost-sharing rule and, in particular, the degree of cost sharing. The results are related to the fact that heterogeneous valuations of the prize in a group cause inappropriate realization of voluntary contributions, a situation known as the "exploitation of the great by the small."