Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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

Ola Andersson (), Håkan J. Holm () and Erik Wengström ()
Additional contact information
Ola Andersson: Research Institute of Industrial Economics (IFN)
Håkan J. Holm: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Erik Wengström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: We conduct a contest experiment to study if spread seeking and effort can be managed in a situation 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 for the winner-take-all scheme. Both types of investments can be controlled with a three-level prize scheme. However, the control management is imperfect and behavior is characterized by inertia. The winner-take-all prize scheme has many potential disadvantages including high spread and heterogeneous behavior compared to other schemes.

Keywords: Contest; Risk; Spread; Incentives; Institutional Choice; Experiment

JEL-codes: C70; D02; D03; D80

64 pages, First version: December 30, 2016. Revised: January 28, 2019.

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