Expenditures and Information Disclosure in Two- Stage Political Contests

This laboratory experiment studies two-stage contests between political parties. In the first stage, parties run their primaries and in the second stage the winners of the primaries compete in the general election. The resource expenditures in the first stage by the winning candidates are partially or fully carried over to the second stage. Experimental results support all major theoretical predictions: the first stage expenditures and the total expenditures increase, while the second stage expenditures decrease in the carryover rate. Consistent with the theory, the total expenditures increase in the number of candidates and the number of parties. Contrary to the theory, however, expenditures in both stages of the competition exceed theoretical predictions. Disclosing information about the opponent’s expenditures in the first stage increases the second stage expenditures and decreases the first stage expenditures.political contest, experiments, information uncertainty, over-expenditures

Contest Design: An Experimental Investigation

This paper experimentally compares the performance of four simultaneous lottery contests: a grand contest, two multiple prize settings (equal and unequal prizes), and a contest which consists of two subcontests. Consistent with the theory, the grand contest generates the highest effort levels among all simultaneous contests. In multi-prize settings, equal prizes produce lower efforts than unequal prizes. The results also support the argument that joint contests generate higher efforts than an equivalent number of subcontests. Contrary to the theory, there is significant over-dissipation. This over-dissipation can be partially explained by strong endowment size effects. Subjects who receive higher endowments tend to over-dissipate, while such over-dissipation disappears when the endowments are lower. This behavior is consistent with the predictions of a quantal response equilibrium. We also find that less risk-averse subjects over-dissipate more.rent-seeking, contest, contest design, experiments, risk aversion, over-dissipation

Experimental Comparison of Multi-Stage and One-Stage Contests

This article experimentally studies a two-stage elimination contest and compares its performance with a one-stage contest. Contrary to the theory, the two-stage contest generates higher revenue than the equivalent one-stage contest. There is significant over-dissipation in both stages of the two-stage contest and experience diminishes over-dissipation in the first stage but not in the second stage. Our experiment provides evidence that winning is a component in a subject’s utility. A simple behavioral model that accounts for a non-monetary utility of winning can explain significant over-dissipation in both contests. It can also explain why the two-stage contest generates higher revenue than the equivalent one-stage contest.rent-seeking, contest, contest design, experiments, risk aversion, over-dissipation

Multi-Level Trust Game with “Insider” Communication

This experiment studies the internal and external effects of communication in a multilevel trust game. In this trust game, the first player can send any part of his endowment to the second player. The amount sent gets tripled. The second player decides how much to send to the third player. The amount is again tripled, and the third player then decides the allocation among the three players. The baseline treatment with no communication shows that the first and second players send significant amounts and the third player reciprocates. When we allow communication only between the second and third players, the amounts sent and returned between these two increase. The new interesting finding is that there are external effects of communication: the first player who is outside communication sends 60% more and receives 140% more than in the no communication treatment. As a result, social welfare and efficiency increase from 48% to 73%.multi-level trust games, experiments, reciprocity, communication

Can Groups Solve the Problem of Overbidding in Contests?

This paper reports an experiment that examines whether groups can make better decisions than individuals in contests. Our experiment replicates previous findings that individual players significantly overbid relative to theoretical predictions, incurring substantial losses. There is high variance in individual bids and strong heterogeneity across individual players. The new findings of our experiment are that groups make bids that are 25% lower, bids have less variance, and there is less heterogeneity across groups than across individuals. Therefore, groups receive significantly higher and more homogeneous payoffs than individuals. We elicit individual and group preferences towards risk using simple lotteries. The results indicate that groups make less risky decisions, which is a possible explanation for lower bids in contests. Most importantly, we find that groups learn to make lower bids from communication and negotiation between group members.Rent-seeking; Contest; Experiments; Risk; Over-dissipation; Group Decision-making

Simultaneous Decision-Making in Competitive and Cooperative Environments

MWe experimentally investigate simultaneous decision-making in two contrasting environments: a competitive environment (a contest) and a cooperative environment (a voluntary contribution mechanism). We find that the cooperative nature of the voluntary contribution mechanism spills over to the contest, decreasing sub-optimal overbidding in the contest. However, contributions to the public good are not affected by simultaneous participation in the contest. There is a significant negative correlation between decisions made in competitive and cooperative environments, i.e. more cooperative subjects tend to be less competitive and vice versa. This correlation can be rationalized by heterogeneous social preferences towards inequality but not by bounded rationality theory.cooperation, competition, public goods, contests, experiments, behavioral spillover

Endowment Effects in Contests

We design an experiment to test if the manner in which subjects receive the endowment has any bearing on the amount of overbidding in contests. We find that overbidding is significantly higher when subjects are given a large per-experiment endowment rather than when the endowment is given per-period. Risk-aversion and non-monetary utility of winning play important roles in explaining our findings.rent-seeking, contest, experiments, overbidding, endowment

A generalized Tullock contest

We construct a generalized Tullock contest under complete information where contingent upon winning or losing, the payoff of a player is a linear function of prizes, own effort, and the effort of the rival. This structure nests a number of existing contests in the literature and can be used to analyze new types of contests. We characterize the unique symmetric equilibrium and show that small parameter modifications may lead to substantially different types of contests and hence different equilibrium effort levels.rent-seeking, contest, spillover

The Equivalence of Contests

We use a Tullock-type contest model to show that intuitively and structurally different contests can be strategically and revenue equivalent to each other. We consider a two-player contest, where outcome-contingent payoffs are linear functions of prizes, own effort, and the effort of the rival. We identify strategically equivalent contests that generate the same family of best response functions and, as a result, the same revenue. However, two strategically equivalent contests may yield different equilibrium payoffs. Finally, we discuss possible contest design applications and avenues for future theoretical and empirical research.rent-seeking, contest, spillover, equivalence, revenue equivalence, contest design

Experimental Research on Contests

Costly competitions between economic agents are modeled as contests. Researchers use laboratory experiments to study contests and test comparative static predictions of contest theory. Commonly, researchers find that participants’ efforts are significantly higher than predicted by the standard Nash equilibrium. Despite overbidding, most comparative static predictions, such as the incentive effect, the size effect, the discouragement effect and others are supported in the laboratory. In addition, experimental studies examine various contest structures, including dynamic contests (such as multi-stage races, wars of attrition, tug-of-wars), multi-dimensional contests (such as Colonel Blotto games), and contests between groups. This article provides a short review of such studies