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Predicting the distribution of contest success under the illusion of proportionality

Author

Listed:
  • Andreas Hefti
  • Peiyao Shen

Abstract

Understanding disparities in contest success is central to explaining how competition shapes the distribution of rewards, influence, or market shares. We introduce the Proportional Play Equilibrium (PPE), a boundedly rational alternative to Nash Equilibrium (NE) grounded in the Illusion of Proportionality, and show that it results in more unequal outcomes by exaggerating the success chances of stronger contestants. Laboratory evidence strongly supports PPE’s predictions for success dispersion while rejecting those of NE. Our results highlight how equilibrium analysis under full rationality may mischaracterize the inequality-generating effects of competition, with further implications for understanding inequality in markets or political contests.

Suggested Citation

  • Andreas Hefti & Peiyao Shen, 2025. "Predicting the distribution of contest success under the illusion of proportionality," ECON - Working Papers 466, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:466
    as

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    File URL: https://www.zora.uzh.ch/id/eprint/276543/1/econwp466.pdf
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    References listed on IDEAS

    as
    1. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, Decembrie.
    2. Ignacio Palacios-Huerta, 2014. "Beautiful Game Theory: How Soccer Can Help Economics," Economics Books, Princeton University Press, edition 1, number 10260.
    3. March, Christoph & Sahm, Marco, 2017. "Asymmetric discouragement in asymmetric contests," Economics Letters, Elsevier, vol. 151(C), pages 23-27.
    4. Alexander Shapiro & Jos Berge, 2002. "Statistical inference of minimum rank factor analysis," Psychometrika, Springer;The Psychometric Society, vol. 67(1), pages 79-94, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Illusion of proportionality; bounded rationality; contest success; market share and inequality; behavioral contest theory;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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