Tournament Fever and the Perception of Strategic Uncertainty in Performance Contests

Tobias Uske

No 2008-057, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: As firms implement tournament bonus reward schemes, mainly the idea is to introduce competition amongst their agents in the order to promote their performance. Tournaments in which agents compete for a bonus by investing effort, are frequently applied, e.g., in development races, political contests, and promotion tournaments. The fallibility of evaluation processes and the inherent variability of competitors' effort choices introduce uncertainty to tournament settings with respect to the outcome. If heterogeneous agents interact in such a setting, experimental results suggest that increasing uncertainty leads to more excess of effort if compared to optimality (Avrahami et al., 2007). This paper experimentally investigates whether the observed overperformance in the tournament is similar to overbidding in auctions. Furthermore, it disentangles two possible sources of over-performance: either biased responses to, or wrong beliefs of, opponents' effort choices. We show that over-performance can be explained by "tournament fever": agents overreact to own beliefs, if compared to best responses, and mainly overestimate their opponents. Leveling uncertainty influences both overshooting and the precision of beliefs.

Keywords: uncertainty; incentive effects; tournament fever; auction fever; all-pay auction (search for similar items in EconPapers)
JEL-codes: J33 M42 M52 M55 (search for similar items in EconPapers)
Date: 2008-07-16
New Economics Papers: this item is included in nep-acc
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Citations: View citations in EconPapers (1)

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