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Best-of-Three Contest Experiments: Strategic versus Psychological Momentum

Mago, Shakun and Sheremeta, Roman and Yates, Andrew (2012): Best-of-Three Contest Experiments: Strategic versus Psychological Momentum. Forthcoming in: International Journal of Industrial Organization

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We conduct an experimental analysis of a best-of-three contest. Intermediate prizes lead to higher efforts, while increasing the role of luck (as opposed to effort) leads to lower efforts. Both intermediate prizes and luck reduce the probability of contest ending in two rounds. The patterns of players’ efforts and the probability that a contest ends in two rounds are consistent with ‘strategic momentum’, i.e., momentum generated due to strategic incentives inherent in the contest. We do not find evidence for ‘psychological momentum’, i.e., momentum which emerges when winning affects players’ confidence. Similar to previous studies of contests, we find significantly higher efforts than predicted and strong heterogeneity in effort between subjects.

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