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Resource allocation contests: Experimental evidence

  • Shupp, Robert
  • Sheremeta, Roman M.
  • Schmidt, David
  • Walker, James

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.

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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 39 (2013)
Issue (Month): C ()
Pages: 257-267

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Handle: RePEc:eee:joepsy:v:39:y:2013:i:c:p:257-267
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