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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2016:37:
Grind or Gamble? An Experimental Analysis of Effort and Spread Seeking in Contests

Ola Andersson (), Håkan J. Holm () and Erik Wengström ()

Abstract: We conduct a contest experiment where participants can invest in increasing both the mean and the spread of an uncertain performance variable. Subjects are treated with different prize schemes and in accordance with theory we observe substantial investments in spread. We find that both types of investments can be controlled with a three level prize scheme. However, the control is imperfect and behavior is characterized by inertia. The winner-take-all prize scheme has many disadvantages including high spread and heterogeneous behavior. The scheme where only one loser is punished appears superior; it generates high mean, low spread and is most popular.

Keywords: Contest; Risk; Spread; Incentives; Institutional Choice; Experiment; (follow links to similar papers)

JEL-Codes: C70; D02; D03; D80; (follow links to similar papers)

66 pages, December 30, 2016

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