Resource Allocation Contests: Experimental Evidence
Federal Trade Commission - Antitrust II
Michigan State University - Department of Agricultural, Food and Resource Economics
James M. Walker
Indiana University - Department of Economics and Workshop in Political Theory and Policy Analysis
August 29, 2006
CAEPR Working Paper No. 2006-004
FTC Bureau of Economics Working Paper No. 261
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.
Number of Pages in PDF File: 35
Keywords: rent seeking, experiments, risk aversion, game theory
JEL Classification: C72, C92, D72
Date posted: January 7, 2004
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