Can being behind get you ahead? Reference Dependence and Asymmetric Equilibria in an Unfair Tournament

Jan Bergerhoff and Agnes Vosen

No 03/2015, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: Everyone remembers a plot where a disadvantaged individual facing the prospect of failure, spends more effort, turns around the game and wins unexpectedly. Most tournament theories, however, predict the opposite pattern and see the disadvantaged agent investing less effort. We show that ’turn arounds’, i.e. situations where the trailing player spends more effort and becomes the likely winner of the tournament, can be the outcome of a Nash equilibrium when the initial unevenness is known and players have reference-dependent preferences. Under certain conditions, they are the only pure strategy equilibrium. If the initial unevenness is large enough the advantaged player will always invest the most effort. We also show that equilibria in which the player behind catches up without becoming the likely winner do not exist.

Keywords: loss aversion; gain-loss utility; normal distribution; competition (search for similar items in EconPapers)
JEL-codes: C72 D44 D63 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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