One-shot Contest vs. Sequential Elimination Tournaments with Heterogeneous Agents - Effort Provision, Sorting and the Discouragement Effect

*Wolfgang Hoechtl
Dept. of Economics/University of Innsbruck

Rudi Kerschbamer
Dept. of Economics/University of Innsbruck/Austria

Rudi Stracke
University of St. Gallen/Switzerland

Uwe Sunde
University of St. Gallen/Switzerland

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     Last modified: March 1, 2011
     Presentation date: 03/12/2011 10:45 AM in NH 1140, Session C
     (View Schedule)

Abstract
In this paper we analyse lottery contests between four heterogeneous agents in two formats and test the theoretical predictions in a laboratory experiment. In equlibrium simultaneous one-shot competition dominates the pairwise sequential elimination tournament with respect to sorting out a "strong" agent as winner while the latter dominates in terms of effort provision given the "weak" contestants are not too weak. If they are, discouragement can however become prohibitive in the one-shot contest causing the weak agents to drop out in certain settings. This may reverse the effort provision ordering of the formats. In the experiment we find substantial overprovision of effort by both types in the one-shot contest and even more so in the tournament. Effort overprovision by the weak players is higher than by the strong which drives the strong players' probability to win below the benchmark in both formats.