Belief Precision and Effort Incentives in Promotion Contests

*Jeanine Miklos-Thal
University of Rochester, Simon School

Hannes Ullrich
University of Zurich

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     Last modified: January 28, 2011
     Presentation date: 03/12/2011 2:45 PM in NH 1140, Session C
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Abstract
This short paper analyzes contests in which the agent with the highest perceived ability wins a prize. We show that each agent's equilibrium effort is non-monotonic in the precision of the prior beliefs about his ability. If little (much) is known about an agent's ability, his effort incentives are increasing (decreasing) in the degree of precision of the beliefs about his ability. The findings have implications for the design of promotion and incentive schemes in organizations.