Endowment Origin, Demographic Effects and Individual Preferences in Contests

Price, Curtis and Sheremeta, Roman (2015): Endowment Origin, Demographic Effects and Individual Preferences in Contests. Published in: Journal of Economics and Management Strategy No. 24 (2015): pp. 597-619.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: contest, experiments, overbidding, endowment, gender, religiosity
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; J - Labor and Demographic Economics > J1 - Demographic Economics > J16 - Economics of Gender ; Non-labor Discrimination

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