CONTEST DESIGN: AN EXPERIMENTAL INVESTIGATION

This paper experimentally compares the performance of four simultaneous lottery contests: a grand contest, two multiple prize settings (equal and unequal prizes), and a contest which consists of two subcontests. Consistent with the theory, the grand contest generates the highest effort levels among all simultaneous contests. In multi‐prize settings, equal prizes produce lower efforts than unequal prizes. The results also support the argument that joint contests generate higher efforts than an equivalent number of subcontests. Contrary to the theory, there is significant over‐dissipation. This over‐dissipation can be partially explained by strong endowment size effects. Subjects who receive higher endowments tend to over‐dissipate, whereas such over‐dissipation disappears when the endowments are lower. This behavior is consistent with the predictions of a quantal response equilibrium. We also find that less risk‐averse subjects over‐dissipate more. (JEL C72, C91, D72)     

CONTESTS WITH DRAWS: AXIOMATIZATION AND EQUILIBRIUM

We introduce and axiomatize a class of single‐winner contest success functions that embody the possibility of a draw. We then analyze the game of contest that our success functions induce, having different prizes delivered in the occurrence of a win and a draw. We identify conditions for the existence and uniqueness of a symmetric interior Nash equilibrium and show that equilibrium efforts and equilibrium rent dissipation can be larger than in a Tullock contest (with no possibility of a draw) due to increased competition even if the draw‐prize is null. These results suggest that a contest designer may profit from introducing the possibility of a draw. Finally, we show that this approach naturally extends to multiprize contests with multiple draws across different subsets of the set of players. (JEL C72, D72, D74)     

INVESTMENT CHOICE ARCHITECTURE IN TRUST GAMES: WHEN “ALL‐IN” IS NOT ENOUGH

While many economic interactions feature “All‐or‐Nothing” options nudging investors towards going “all‐in,” such designs may unintentionally affect reciprocity. We manipulate the investor's action space in two versions of the “trust game.” In one version investors can invest either “all” their endowment or “nothing.” In the other version, they can invest any amount of the endowment. Consistent with our intentions‐based model, we show that “all‐or‐nothing” designs coax more investment but limit investors' demonstrability of intended trust. As a result, “all‐in” investors are less generously reciprocated than when they can invest any amount, where full investments are a clearer signal of trustworthiness. (JEL C72, C90, C91, D63, D64, L51)     

DOING IT WHEN OTHERS DO: A STRATEGIC MODEL OF PROCRASTINATION

This paper develops a strategic model of procrastination in which present‐biased agents prefer to perform an onerous task with someone else. This turns their decision of when to perform the task into a procrastination game—a dynamic coordination game between present‐biased players. The model characterizes the conditions under which interaction mitigates or exacerbates procrastination. A procrastinator matched with a worse procrastinator may perform her task earlier than she otherwise would: she wants to avoid the increased temptation that her peer's company would generate. Procrastinators can thus use bad company as a commitment device to mitigate their self‐control problem. (JEL C72, C73, D03, D91)     

HOLD‐UP: WITH A VENGEANCE

When contracts are incomplete or unenforceable, inefficient levels of investment may occur because of hold‐up. If individuals care for negative reciprocity, these problems may be reduced, as revenge becomes a credible threat. However, negative reciprocity has this effect only when the investor holds the rights of control of the investment proceeds. We explore this issue analytically, deriving predictions for hold‐up games which differ as regards assignment of rights of control. We also test and support these predictions in an experiment. (JEL C72, C92, D23, L14)     

SLEEPING WITH THE ENEMY: THE ECONOMIC COST OF INTERNAL ENVIRONMENTAL CONFLICTS

This paper extends the literature on collective rent‐seeking by introducing the possibility that a competing group may be a subset of another. We develop a model that incorporates the potential for some individuals to be party of both sides of a conflict, which creates interdependence of payoffs. Results indicate that strategic individual behavior, and the resulting rent dissipation, is affected by the relative size of the groups. We conduct an experimental test of the model and find that observed laboratory behavior corresponds well with the game‐theoretic comparative‐static predictions. (JEL C72, C9, Q5, D74)     

THREE‐PLAYER TRUST GAME WITH INSIDER COMMUNICATION

We examine behavior in a three‐player trust game in which the first player may invest in the second and the second may invest in the third. Any amount sent from one player to the next is tripled. The third player decides the final allocation among three players. The baseline treatment with no communication shows that the first and second players send significant amounts and the third player reciprocates. Allowing insider communication between the second and the third players increases cooperation between these two. Interestingly, there is an external effect of insider communication: the first player who is outside communication sends 54% more and receives 289% more than in the baseline treatment. As a result, insider communication increases efficiency from 44% to 68%. (JEL C72, C91, D72)     

FLIP‐FLOPPING: IDEOLOGICAL ADJUSTMENT COSTS IN THE UNITED STATES SENATE

Using a long panel of roll call voting data, I find that “flip‐flopping” senators face significant electoral costs when changing positions. In models of electoral competition, as the costs to candidates changing position approach zero, the equilibrium prediction is the convergence of platforms. Such convergence is at odds with empirical observation. Using a dynamic, structural model of candidate positioning, I identify the nature of the costs associated with changing position that may result in such non‐convergence. (JEL D72, C61, H11)     

THE ATTACK‐AND‐DEFENSE GROUP CONTESTS: BEST SHOT VERSUS WEAKEST LINK

This study analyzes a group contest in which one group (defenders) follows a weakest link, whereas the other group (attackers) follows a best shot impact function (IF). We fully characterize the Nash and coalition‐proof equilibria and show that with symmetric valuation the coalition‐proof equilibrium is unique up to the permutation of the identity of the active player in the attacker group. With asymmetric valuation, it is always an equilibrium for one of the highest valuation players to be active; it may also be the case that the highest valuation players in the attacker group free‐ride completely on a group member with a lower valuation. However, in any equilibrium, only one player in the attacker group is active, whereas all the players in the defender group are active and exert the same effort. We also characterize the Nash and coalition‐proof equilibria for the case in which one group follows either a best shot or a weakest link but the other group follows an additive IF. (JEL C72, D70, D72, D74, H41)     

DETERRENCE,PREEMPTION, AND PANIC: A COMMON‐ENEMY PROBLEM OF TERRORISM

A game‐theoretic analysis of terrorism examines interactions between a terrorist organization and multiple target countries. It considers both preemption and deterrence as counter‐terrorist policies. Damage from terror includes material costs and resultant fear. Fear effects lead to different equilibria and implications for counter‐terrorism policies. The model identifies conditions under which greater preemption may be the rational response to an increase in terrorism, that is, it analyzes the merit of the dictum “offense is the best defense.” It also examines the characteristics of cooperative behavior among target countries in dealing with the threat of terrorism. (JEL C72, D74, F52, F53, H41)     

THE MORAL COSTS OF NASTINESS

We introduce two variants of the one‐shot joy‐of‐destruction minigame (mini‐JOD). Two players are endowed with the same amount of money. They simultaneously decide whether or not to reduce the other player's payoff at an own cost. In one treatment there was a probability that nature would destroy the opponent's money anyway. We test whether this feature reduces the moral costs of nastiness, and find that destruction rates rise significantly, despite the absence of strategic reasons. (JEL C72, C91, D03)     

PRIZE SCARCITY AND OVERDISSIPATION IN ALL‐PAY AUCTIONS

We compare bidding behavior in complete information all‐pay auction experiments that vary in the prizes and number of players. We confirm the observation from prior single‐prize experiments that there is overbidding relative to equilibrium predictions. Our primary results are that increasing the number of prizes and players proportionally does not reduce overbidding but increasing the number of prizes with a fixed number of players eliminates overbidding. We conclude that the overbidding phenomenon is related to the scarcity of the prize. We provide new theoretical results on the multi‐prize logit equilibrium, and our experimental results are qualitatively consistent with logit equilibrium predictions. (JEL D72, D91, C91, D44)     

SURVEY MEASURES OF FAMILY DECISION PROCESSES FOR ECONOMETRIC ANALYSIS OF SCHOOLING DECISIONS

In this article, we consider the collection of novel subjective data on family processes of schooling decisions. In particular, we review recent progress on survey measurement of expectations, information, and locus of decision of American families within the context of secondary schooling, and we discuss possible future developments by providing concrete examples from recent exploratory efforts. We argue that collection of data on adolescents' and parents' perceptions of the available school options and the application‐and‐admission rules, their subjective expectations about short‐ and long‐term consequences of alternative choices, and their assessments of the locus of decision making within families could greatly enhance economic modeling and contribute to effective econometric analysis of schooling decisions. (JEL C83, D19, D79, D83, D84, I21, I26, J24)     

INFORMATION VALUE UNDER DEMAND UNCERTAINTY AND ENDOGENOUS MARKET LEADERSHIP

In an oligopoly model with firms choosing to produce in one of two periods, we identify the circumstance under which a firm's having early information regarding stochastic demand results in market leadership. High demand volatility leads to Stackelberg competition with the information‐advantaged firm leading. In the N‐firm case an equilibrium with multiple leaders and multiple followers emerges endogenously. In a duopoly information acquisition game we identify conditions that determine whether neither, one, or both firms will pay to acquire early information and note that one firm's obtaining early information may generate a positive externality benefitting its competitor. Both symmetric and asymmetric outcomes are possible and Stackelberg market leadership may occur in equilibrium, but only when firms have different costs of information. Our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first‐mover advantage such as certain public good provision games. (JEL C72, D82, L13)     

LEADERSHIP BY EXAMPLE IN THE WEAK‐LINK GAME

We investigate the effects of leadership in a four‐player weak‐link game. A weak‐link game is a coordination game with multiple Pareto‐ranked Nash equilibria. Because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria. We wanted to see whether leadership by example, in the form of one player acting publicly before the rest of the group, could help groups do better. Our results suggest that leadership can increase efficiency but is far from being a guarantee of success. Specifically, in a significant number of groups we observed successful leadership and increased efficiency, but in most groups efficiency was low despite the efforts of leaders. We did not find any difference between voluntary leaders and leaders that are randomly assigned. (JEL C72, H41)     

RELIGIOUS HOMOPHILY IN A SECULAR COUNTRY: EVIDENCE FROM A VOTING GAME IN FRANCE

Homophily—the tendency individuals have to associate with similar‐others—is a powerful determinant of social networks. Yet research to date does not allow us to determine which dimension, e.g., ethnic, religious, gender, age, or class similarity, drives association. Tests demonstrating homophily are flawed by restricting the range of dimensions in the choice set. We introduce an experimental game in which we exogenously expose subjects to diverse partners to determine which dimension dominates. We find that in a socio‐demographically diverse district of Paris, despite expectations of secularization, religious similarity significantly predicts homophily. Moreover, we provide tentative evidence that religious homophily is taste‐based. (JEL C91, D03, D72, J71, Z12)     

NON‐MONETARY INCENTIVES AND OPPORTUNISTIC BEHAVIOR: EVIDENCE FROM A LABORATORY PUBLIC GOOD GAME

This study reports data from a laboratory experiment that investigates the incentive effect of three distinct social communication schemes on free‐riding behavior. We use performance‐based approval and disapproval ratings and a linear public good game to address the above issues. The treatments vary in terms of subjects' opportunities to anonymously assign (1) only the approval ratings to other group members, (2) only the disapproval ratings to other group members, and (3) either the approval or the disapproval ratings to other group members (but not both to the same group member), after they play a standard linear public good game. Despite the Nash prediction of zero individual contribution in all three treatments, the data show that the disapproval points generate significantly higher contribution than the approval points. The treatment in which subjects could communicate either the approval or the disapproval points produces the highest level of contribution. We discuss the implications that these findings may have for efficient design of organizations. (JEL D03, H41, C72, C92)     

DECEPTION AND POLITICAL PARTICIPATION: THEORY AND LABORATORY EVIDENCE

We model two‐candidate elections in which (1) voters are uncertain about candidates' attributes; and (2) candidates can inform voters of their attributes by sending advertisements. We compare between political campaigns with truthful advertising and campaigns in which there is a small chance of deceptive advertising. Our model predicts that voters should vote in‐line with an advertisement's information. We test our model's predictions using laboratory elections. We find, in the presence of even a small probability that an advertisement is deceptive, voters become substantially more likely to elect a “low‐quality” candidate. We discuss implications of this for existing models of voting decisions. (JEL C92, D72, D82)     

INCOMPLETE INFORMATION STRENGTHENS THE EFFECTIVENESS OF SOCIAL APPROVAL

We present a theoretical model of a public good game in which the expression of social approval induces pro‐social behavior. Using a laboratory experiment with earned heterogeneous endowments, we test our model. The main hypothesis is that the expression of social approval increases cooperative behavior even if reputation building is impossible. We vary the information available and investigate how this affects the expression of social approval and individual contributions. The expression of social approval significantly increases contributions. However, the increase is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others' contributions. (JEL C72, C91, D71, D83)     

SATISFICING AND PRIOR‐FREE OPTIMALITY IN PRICE COMPETITION

We apply a model of satisficing to oligopoly markets with price competition. Sellers have profit aspirations reflecting their conjectures about their competitors' behavior and search for a price guaranteeing these aspirations. Because it seems implausible that people have detailed priors on the others' actions, we postulate that sellers entertain multiple conjectures to which no probabilities can be assigned. This allows us to propose a theory of “prior‐free” optimality and to examine experimentally whether people comply with it. We find that decision makers have difficulties in making prior‐free optimal choices. Most are content to just satisfice, although ways to aspire to more ambitious profits were obviously available. (JEL C92, C72, D43)