Endowment Origin, Demographic Effects and Individual Preferences in Contests

30 Pages Posted: 29 Mar 2012

See all articles by Curtis R. Price

Curtis R. Price

University of Southern Indiana - School of Business

Roman M. Sheremeta

Case Western Reserve University

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2012

Abstract

In modern firms the use of contests as an incentive device is ubiquitous. Nonetheless, recent 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 if changing how agents are endowed with resources can increase the efficiency in contests. To this end, we conduct a laboratory experiment in which subjects are asked to allot costly resources (bids) in an effort 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 overall efficiency. Overbidding is also linked to gender with women bidding higher than men and having lower average earnings. Other demographic information such as religiosity and individual preferences towards winning and risk also contribute to excessive bidding.

Keywords: contest, experiments, overbidding, endowment, gender, religiosity

JEL Classification: C72, C91, D61, D72, J16

Suggested Citation

Price, Curtis R. and Sheremeta, Roman M., Endowment Origin, Demographic Effects and Individual Preferences in Contests (March 28, 2012). Available at SSRN: https://ssrn.com/abstract=2030470 or http://dx.doi.org/10.2139/ssrn.2030470

Curtis R. Price

University of Southern Indiana - School of Business ( email )

Evansville, IN 47712
United States

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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