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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

Abstract: 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)
Pages: 40
Date: 2021-07
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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