Endowment Origin,Demographic Effects,and Individual Preferences in Contests |
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| Authors: | Curtis R. Price Roman M. Sheremeta |
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| Affiliation: | 1. Department of Economics & Marketing, Romain College of Business, University of Southern Indiana, 8600 University Blvd, Evansville, IN;2. Weatherhead School of Management, Case Western Reserve University, 11119 Bellflower Road, Cleveland, OH 44106 |
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| 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. |
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