Resource allocation contests: Experimental evidence

• Published in: Journal of economic psychology Vol. 39; pp. 257 - 267
• Main Authors: Shupp, Robert, Sheremeta, Roman M., Schmidt, David, Walker, James
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-12-2013; Elsevier; Elsevier Sequoia S.A
• Subjects: Applied psychology; Behavior; Biological and medical sciences; Comparative analysis; Contest; Decision making; Economic psychology; Experimental methods; Experiments; Fundamental and applied biological sciences. Psychology; Game theory; Management science; Miscellaneous; Preferences; Psychology. Psychoanalysis. Psychiatry; Psychology. Psychophysiology; Rent-seeking; Resource allocation; Risk aversion; Risk theory; Studies; Risk aversion; 4250; 3660; Rent-seeking; Contest; 3020; 2260; C92; Experiments; Game theory; D72; C72; Human; Resource allocation; Experimental study
• ISSN: 0167-4870; 1872-7719
• DOI: 10.1016/j.joep.2013.09.001

•We examine behavior in single-prize, multiple-prize and proportional-prize contests.•We elicit preferences toward risk, ambiguity and losses.•Multiple-prize and proportional-prize contests generate higher expenditures than the single-prize contest.•At the individual level behavior is more similar in the single-prize and multi-prize contests.•Loss-aversion is most predictive of behavior in the single-prize and multiple-prize contests.
Many resource allocation contests have the property that individuals undertake costly actions to appropriate a potentially divisible resource. We design an experiment to compare individuals’ decisions across three resource allocation contests which are isomorphic under risk-neutrality. The results indicate that in aggregate the single-prize contest generates lower expenditures than either the proportional-prize or the multi-prize contest. Interestingly, while the aggregate results indicate similar behavior in the proportional-prize and multi-prize contests, individual level analysis indicates that the behavior in the single-prize contest is more similar to the behavior in the multi-prize contest than in the proportional-prize contest. We also elicit preferences toward risk, ambiguity and losses, and find that while such preferences cannot explain individual behavior in the proportional-prize contest, preferences with regard to losses are predictive of behavior in both the single-prize and multiple-prize contests. Therefore, it appears that loss aversion is correlated with behavior in the single-prize and multi-prize contests where losses are likely to occur, but not in the proportional-prize contest where losses are unlikely.