Asymmetric Shocks in Contests: Theory and Experiment
Daniel Houser () and
Jian Song ()
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Daniel Houser: Interdisciplinary Center for Economic Science and Department of Economics, George Mason University
Jian Song: Interdisciplinary Center for Economic Science and Department of Economics, George Mason University
No 1081, Working Papers from George Mason University, Interdisciplinary Center for Economic Science
Under optimal tournament design, we would expect agents to exert identical effort regardless of the shape of the contest function’s error component. We report data from laboratory experiments that provide a first test of this prediction. We find that efforts do not significantly differ when the shock distribution exhibits negative skewness versus a uniform distribution; however, subjects react substantially differently to random shock realizations under different treatments. Specifically, tournament winners demonstrate stronger reactions, economically and statistically, to negatively-skewed shocks than to uniform shocks. Meanwhile, tournament losers are less likely to be affected by negatively-skewed shocks. Our results highlight the importance of accounting for the influence of the shape of the shock distribution on a contest participant’s effort.
Keywords: Asymmetric random shock; Tournament; Winner; Loser; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C90 D90 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-exp, nep-isf, nep-ore and nep-spo
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Persistent link: https://EconPapers.repec.org/RePEc:gms:wpaper:1081
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