Asymmetric Shocks in Contests: Theory and Experiment

38 Pages Posted: 4 Jan 2022

See all articles by Jian Song

Jian Song

Chapman University; George Mason University - Interdisciplinary Center for Economic Science (ICES)

Daniel Houser

Interdisciplinary Center for Economic Science

Multiple version iconThere are 2 versions of this paper

Abstract

Under optimal tournament design, we would expect agents to exert identical effort regardless of the shape of the contest function’s error component. We report data from laboratory experiments that provide a first test of this prediction. We find that efforts do not significantly differ when the shock distribution exhibits negative skewness versus a uniform distribution; however, subjects react substantially differently to random shock realizations under different treatments. Specifically, tournament winners demonstrate stronger reactions, economically and statistically, to negatively-skewed shocks than to uniform shocks. Meanwhile, tournament losers are less likely to be affected by negatively-skewed shocks. Our results highlight the importance of accounting for the influence of the shape of the shock distribution on a contest participant’s effort.

Keywords: Asymmetric random shock, Tournament, Winner, Loser, laboratory experiment

Suggested Citation

Song, Jian and Houser, Daniel, Asymmetric Shocks in Contests: Theory and Experiment. Available at SSRN: https://ssrn.com/abstract=4000364 or http://dx.doi.org/10.2139/ssrn.4000364

Jian Song (Contact Author)

Chapman University ( email )

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

Vernon Smith Hall, 3434 Washington Blvd. North, 5t
Arlington, VA 22201
United States

Daniel Houser

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

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