Fairness and desert in tournaments

Abstract

We model the behavior of agents who care about receiving what they feel they deserve in a two-player rank-order tournament. Perceived entitlements are sensitive to how hard an agent has worked relative to her rival, and agents are loss averse around their meritocratically determined endogenous reference points. In a fair tournament sufficiently large desert concerns drive identical agents to push their effort levels apart in order to end up closer to their reference points on average. In an unfair tournament, where one agent is advantaged, the equilibrium is symmetric in the absence of desert, but asymmetric in the presence of desert. We find that desert concerns can undermine the standard conclusion that competition for a fixed supply of status is socially wasteful and explain why, when the distribution of output noise is fat-tailed, an employer might use a rank-order incentive scheme.

Winner-take-all and proportional-prize contests: Theory and experimental results

“…Importantly, subjects who have risk averse preferences often choose lower efforts on average in the contests, although the pattern seems often mixed, especially for the deterministic contest. A growing body of research has examined how social preferences impact individual behavior in contests (Herrmann and Orzen, 2008;Bartling et al, 2009;Gill and Stone, 2010;Mago et al, 2016: Sheremeta, 2016. Grund and Sliwka (2005) show theoretically that inequity averse agents, who dislike disadvantageous and advantageous inequality of payoffs, exert higher efforts than purely self-interested agents.…”

Relative performance pay in the shadow of crisis

“…Anticipating this tournament outcome, the average income   = (  +   ) 2 seems to be a natural candidate for the reference point. Following Barberis et al (2001), DeMeza andWebb (2007), p. 70, andGill andStone (2010), we assume that a loss averse player's preferences can be described by a linearly kinked utility function: 5…”

“…Analogously to Gill and Stone (2010), we can apply the concept of an choice-acclimating personal equilibrium suggested by Köszegi and Rabin (2007) and insert for   in (2) the expected tournament income conditional on players' effort choices, (  +   )  (  )  (  ) 2. Thus, player 's objective function now reads as Course of action in the first round At the beginning of this round you will be randomly assigned to another player you will play with in this round.…”

Who is afraid of pirates? An experiment on the deterrence of innovation by imitation

“…e.g. Gill and Stone 2010). Since participants' attitude towards this fairness norm may be key for understanding our results, we design the following new test: At the end of the experiment, we inform participants that they will be randomly matched to new pairs of two participants.…”