A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
AbstractWe investigate how risk aversion affects the organizer's disclosing the actual number of bidders in an all‐pay auction with an exogenous bid cap and stochastic entry. With an exogenous probability of participation, the organizer prefers fully concealing the number of participating bidders when bidders are risk neutral. However, this result does not hold with risk aversion. Specifically, whether the organizer prefers fully concealing or fully revealing information depends on the number of potential bidders, the probability of participation, and the size of bid caps. A special case of endogenous entry shows that the organizer's preference is similar to the risk‐neutral case.
We study decision making processes with non-standard all-pay structures. We motivate this interest through a group of regulatory, political, legal, military, and economic applications where individual actions determine the consequences for a larger group or the public. The common features of these examples are a competitive environment, winner-take-all reward structure, and some form of all-pay-all payment rule.
Decision-making processes are studied using non-standard all-pay structures. Our interest is motivated by regulatory, political, legal, military, and economic applications in which individual actions determine the consequences for a larger group or the general public. The common features of these examples are a competitive environment, a winner-takes-all reward structure, and some form of all-pay-all payment rule. Adapted from the source document.
Three all-pay auction models are examined. The first is a symmetric two-player binary-signal all-pay auction with correlated signals and interdependent valuations. The first chapter provides a complete characterization of each form of equilibrium and gives conditions for their existence. The main finding is that there generically exists a unique equilibrium. The unique equilibrium can only be one of four forms of equilibria. I apply my all-pay auction model to elections, where a candidate that receives good news from the polls behaves in a rationally overconfident manner and reduces her equilibrium effort. Consequently, the other candidate can win the election in an upset. The second chapter extends Chapter 1's model to N signals. In comparison, the binary model allows for a guess-verify approach. However, the number of possible guesses increases rapidly when N increases. Hence such an approach is infeasible. Chapter 2's approach is centered around linear algebra techniques and a novel notion of a weakly monotone equilibrium. In a weakly monotone equilibrium the bid supports are ordered by the strong set order but not necessarily separated like the traditional monotone equilibrium. I classify these weakly monotone equilibria into four primary forms. I characterize each form and find sufficient conditions for their existence. Furthermore, for the model used in Rentschler and Turocy (2016), I provide a novel necessary and sufficient condition for the existence of a traditional monotone equilibrium. The third chapter considers a two-stage game: a negotiation stage followed by a conflict stage in case the negotiations break down. In a setting with multi-dimensional correlated types, two players compete over a good that is of uncertain but common value. Conflict is modeled as an all-pay auction, which endogenizes the cost of conflict. In the literature, which assumes independent private values or costs, a peaceful equilibrium, in which war occurs with zero probability need not exist. I find that in my correlated pure ...
