Endowment Origin, Demographic Effects and Individual Preferences in Contests

Curtis J. Simon and Roman Sheremeta

MPRA Paper from University Library of Munich, Germany

Abstract: In modern firms the use of contests as an incentive device is ubiquitous. Nonetheless, experimental research shows that in the laboratory subjects routinely make suboptimal decisions in contests even to the extent of making negative returns. The purpose of this study is to investigate how earning the endowment, demographic differences and individual preferences impact behavior in contests. To this end, we conduct a laboratory experiment in which subjects expend costly resources (bids) to attain an award (prize). In line with other laboratory studies of contests, our results show that subjects overbid relative to theoretical predictions and incur substantial losses as a result. Making subjects earn their initial resource endowments mitigates the amount of overbidding and thus increases efficiency. Overbidding is linked to gender, with women bidding higher than men and having lower average earnings. Other demographic information, such as religiosity, and individual preferences, such as preferences towards winning and risk, also influence behavior in contests.

Keywords: contest; experiments; overbidding; endowment; gender; religiosity (search for similar items in EconPapers)
JEL-codes: C72 C91 D61 D72 J16 (search for similar items in EconPapers)
Date: 2015-03-25
New Economics Papers: this item is included in nep-exp and nep-gth
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Citations: View citations in EconPapers (70)

Published in Journal of Economics and Management Strategy 24 (2015): pp. 597-619

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https://mpra.ub.uni-muenchen.de/67875/1/MPRA_paper_67519.pdf revised version (application/pdf)

Related works:
Journal Article: Endowment Origin, Demographic Effects, and Individual Preferences in Contests (2015)
Working Paper: Endowment Origin, Demographic Effects and Individual Preferences in Contests (2012)
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