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Resource Allocation Contests: Experimental Evidence

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Author Info
David Schmidt () (Federal Trade Commission, Bureau of Economics)
Robert Shupp () (Ball State University)
James M. Walker () (Indiana University Bloomington)

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Abstract

Across many forms of rent seeking contests, the impact of risk aversion on equilibrium play is indeterminate. We design an experiment to compare individuals’ decisions across three contests which are isomorphic under risk-neutrality, but are typically not isomorphic under other risk preferences. The pattern of individual play across our contests is not consistent with a Bayes-Nash equilibrium for any distribution of risk preferences. We show that replacing the Bayes-Nash equilibrium concept with the quantal response equilibrium, along with heterogeneous risk preferences can produce equilibrium patterns of play that are very similar to the patterns we observe.

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Publisher Info
Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2006-004.

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Length: 35 pages
Date of creation: Feb 2005
Date of revision: Aug 2006
Handle: RePEc:inu:caeprp:2006004

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Related research
Keywords: rent seeking; experiments; risk aversion; game theory;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cox, James C & Smith, Vernon L & Walker, James M, 1985. "Experimental Development of Sealed-Bid Auction Theory: Calibrating Controls for Risk Aversion," American Economic Review, American Economic Association, vol. 75(2), pages 160-65, May. [Downloadable!] (restricted)
  2. Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, vol. 42(2), pages 281-299, February. [Downloadable!] (restricted)
  3. Jan Potters & Casper G. de Vries & Frans van Winden, 1998. "An Experimental Examination of Rational Rent-Seeking," Tinbergen Institute Discussion Papers 98-068/1, Tinbergen Institute.
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  4. Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, vol. 95(1), pages 89-115, April. [Downloadable!] (restricted)
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  5. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July. [Downloadable!] (restricted)
  6. Beja, Avraham, 1992. "Imperfect equilibrium," Games and Economic Behavior, Elsevier, vol. 4(1), pages 18-36, January. [Downloadable!] (restricted)
  7. Shogren, Jason F & Baik, Kyung H, 1991. " Reexamining Efficient Rent-Seeking in Laboratory Markets," Public Choice, Springer, vol. 69(1), pages 69-79, February.
  8. Ledyard, John O., 1986. "The scope of the hypothesis of Bayesian equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 59-82, June. [Downloadable!] (restricted)
  9. Borgers, Tilman, 1993. "Pure Strategy Dominance," Econometrica, Econometric Society, vol. 61(2), pages 423-30, March. [Downloadable!] (restricted)
  10. Millner, Edward L & Pratt, Michael D, 1991. " Risk Aversion and Rent-Seeking: An Extension and Some Experimental Evidence," Public Choice, Springer, vol. 69(1), pages 81-92, February.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Faravelli & Luca Stanca, 2007. "Single versus Multiple Prize Contests to Finance Public Goods: Theory and Experimental Evidence," Discussion Paper Series, Department of Economics 0715, Department of Economics, University of St. Andrews. [Downloadable!]
    Other versions:
  2. Klaus Abbink & Jordi Brandts & Benedikt Herrmann & Henrik Orzen, 2009. "Inter-Group Conflict and Intra-Group Punishment in an Experimental Contest Game," Discussion Papers 2009-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
    Other versions:
  3. Xiaojing Kong, 2008. "Loss Aversion and Rent-Seeking: An Experimental Study," Discussion Papers 2008-13, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
  4. Benedikt Herrmann & Henrik Orzen, 2008. "The appearance of homo rivalis: Social preferences and the nature of rent seeking," Discussion Papers 2008-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
  5. John Morgan & Henrik Orzen & Martin Sefton, 2008. "Endogenous Entry in Contests," Discussion Papers 2008-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
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