FTC Bureau of Economics Working Paper No. 261
35 Pages Posted: 7 Jan 2004
Date Written: August 29, 2006
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.
Keywords: rent seeking, experiments, risk aversion, game theory
JEL Classification: C72, C92, D72
Suggested Citation: Suggested Citation
Schmidt, David and Shupp, Robert and Walker, James M., Resource Allocation Contests: Experimental Evidence (August 29, 2006). CAEPR Working Paper No. 2006-004; FTC Bureau of Economics Working Paper No. 261. Available at SSRN: https://ssrn.com/abstract=428022 or http://dx.doi.org/10.2139/ssrn.428022