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Tournament Fever and the Perception of Strategic Uncertainty in Performance Contests

Author

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  • Tobias Uske

    () (Max Planck Institute for Economics, Strategic Interaction Group, Jena.)

Abstract

As firms implement tournament bonus reward schemes, mainly the idea is to introduce competition amongst their agents in the order to promote their performance. Tournaments in which agents compete for a bonus by investing effort, are frequently applied, e.g., in development races, political contests, and promotion tournaments. The fallibility of evaluation processes and the inherent variability of competitors' effort choices introduce uncertainty to tournament settings with respect to the outcome. If heterogeneous agents interact in such a setting, experimental results suggest that increasing uncertainty leads to more excess of effort if compared to optimality (Avrahami et al., 2007). This paper experimentally investigates whether the observed overperformance in the tournament is similar to overbidding in auctions. Furthermore, it disentangles two possible sources of over-performance: either biased responses to, or wrong beliefs of, opponents' effort choices. We show that over-performance can be explained by "tournament fever": agents overreact to own beliefs, if compared to best responses, and mainly overestimate their opponents. Leveling uncertainty influences both overshooting and the precision of beliefs.

Suggested Citation

  • Tobias Uske, 2008. "Tournament Fever and the Perception of Strategic Uncertainty in Performance Contests," Jena Economic Research Papers 2008-057, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2008-057
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    File URL: http://zs.thulb.uni-jena.de/receive/jportal_jparticle_00104368
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    Keywords

    uncertainty; incentive effects; tournament fever; auction fever; all-pay auction;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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