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Optimal Prizes in Dynamic Elimination Contests: An Experimental Analysis

  • Stracke, Rudi
  • Höchtl, Wolfgang
  • Kerschbamer, Rudolf
  • Sunde, Uwe

This paper investigates the effects of different prize structures on the effort choices of participants in two-stage elimination contests. A format with a single prize is shown to maximize total effort over both stages, but induces low effort in stage 1 and high effort in stage 2. By contrast, a format that allocates the same total amount to multiple prizes in such a way that the predicted effort remains constant across stages yields lower total effort provision. Experimental evidence suggests that (i) total effort is higher in the single prize format, but only for risk-neutral subjects; (ii) effort is constant across stages in the format with multiple prizes, independently of risk-attitudes; and (iii) the runner-up prize in the multiple prize format increases stage-1 and decreases stage-2 efforts in line with the theoretical prediction.

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File URL: http://econstor.eu/bitstream/10419/79883/1/VfS_2013_pid_380.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79883.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79883
Contact details of provider: Web page: http://www.socialpolitik.org/
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  1. Sheremeta, Roman, 2009. "Contest Design: An Experimental Investigation," MPRA Paper 52101, University Library of Munich, Germany.
  2. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
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  8. Fu, Qiang & Lu, Jingfeng, 2006. "The optimal multi-stage contest," MPRA Paper 946, University Library of Munich, Germany.
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  12. Dana Sisak, 2009. "Multiple-Prize Contests - The Optimal Allocation Of Prizes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 82-114, 02.
  13. Gneezy, Uri & Smorodinsky, Rann, 2006. "All-pay auctions--an experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 255-275, October.
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  16. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, March.
  17. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  18. Sheremeta, Roman, 2009. "Experimental Comparison of Multi-Stage and One-Stage Contests," MPRA Paper 49884, University Library of Munich, Germany.
  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  20. Alexander Matros, 2006. "Elimination Tournaments where Players Have Fixed Resources," Working Papers 205, University of Pittsburgh, Department of Economics, revised Jan 2006.
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