Competing on the Holodeck - The effect of virtual peers and heterogeneity in dynamic tournaments

We propose experiments in virtual reality (VR) as a new approach to examining economic behavior: in the present case, the topic of heterogeneity in dynamic tournaments. We simulate a realistic working situation in an immersive VR environment. Implementing a tournament in VR, we are able to mitigate the reflection problem, which usually undermines research on dynamic interaction. Moreover, VR allows us to control for the performance of the virtual peer – a humanoid avatar – and thus to get an understanding of the reaction of the subject to the avatar in a dynamic setting, as the subject is constantly able to observe the avatar's performance. We observe that the subjects’ performance is highest in a homogeneous tournament, i.e., when they compete against an avatar performing exactly as well as they themselves did in the preceding phase. This result is driven by peer effects rather than by tournament incentives. We track the behavior of each subject in each situation, and we examine the role that intermediate information about score differences play.