Endowment Origin, Demographic Effects, and Individual Preferences in Contests

23 Pages Posted: 29 Jul 2015

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: Fall 2015

Abstract

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 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 toward winning and risk, also influence behavior in contests.

Suggested Citation

Price, Curtis R. and Sheremeta, Roman M., Endowment Origin, Demographic Effects, and Individual Preferences in Contests (Fall 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 3, pp. 597-619, 2015. Available at SSRN: https://ssrn.com/abstract=2637085 or http://dx.doi.org/10.1111/jems.12108

Curtis R. Price (Contact Author)

University of Southern Indiana - School of Business ( email )

Evansville, IN 47712
United States

Roman M. Sheremeta

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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