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Resource Allocation Contests: Experimental Evidence

  • David Schmidt

    ()

    (Federal Trade Commission, Bureau of Economics)

  • Robert Shupp

    ()

    (Ball State University)

  • James M. Walker

    ()

    (Indiana University Bloomington)

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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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2006/CAEPR2006-004.pdf
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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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