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Endowment Origin, Demographic Effects and Individual Preferences in Contests

Listed author(s):
  • Simon, Curtis J.
  • Sheremeta, Roman

In modern firms the use of contests as an incentive device is ubiquitous. Nonetheless, experimental research shows that in the laboratory subjects routinely make suboptimal decisions in contests even to the extent of making negative returns. The purpose of this study is to investigate how earning the endowment, demographic differences and individual preferences impact behavior in contests. To this end, we conduct a laboratory experiment in which subjects expend costly resources (bids) to attain an award (prize). In line with other laboratory studies of contests, our results show that subjects overbid relative to theoretical predictions and incur substantial losses as a result. Making subjects earn their initial resource endowments mitigates the amount of overbidding and thus increases efficiency. Overbidding is linked to gender, with women bidding higher than men and having lower average earnings. Other demographic information, such as religiosity, and individual preferences, such as preferences towards winning and risk, also influence behavior in contests.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 67519.

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Date of creation: 25 Mar 2015
Publication status: Published in Journal of Economics and Management Strategy 24 (2015): pp. 597-619
Handle: RePEc:pra:mprapa:67519
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