Experimental comparison of multi-stage and one-stage contests |
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| Institution: | 1. Tulane University, United States of America;2. Max Planck Institute for Tax Law and Public Finance, Germany;1. Department of Economics, Texas A&M University, United States;2. Center for Social Norms and Behavioral Dynamics, University of Pennsylvania, United States;3. Escuela de Administración, Universidad ICESI, Colombia;4. Department of Economics, University of Dallas, United States;1. NUS Business School, National University of Singapore, 15 Kent Ridge Drive, Singapore;2. Business School, Queensland University of Technology, 2 George Street, Brisbane, Australia;3. Department of Public Economics, Max Planck Institute for Tax Law and Public Finance, Martstallplatz 1, Munich, Germany |
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| Abstract: | This article experimentally studies a two-stage elimination contest and compares its performance with a one-stage contest. Contrary to the theory, the two-stage contest generates higher revenue than the equivalent one-stage contest. There is significant over-dissipation in both stages of the two-stage contest and experience diminishes over-dissipation in the first stage but not in the second stage. Our experiment provides evidence that winning is a component in a subject's utility. A simple behavioral model that accounts for a non-monetary utility of winning can explain significant over-dissipation in both contests. It can also explain why the two-stage contest generates higher revenue than the equivalent one-stage contest. |
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