Self-Selection into Contests: Theory and Experimental Evidence
52 Pages Posted: 16 Jun 2013
Date Written: June 1, 2013
Abstract
This paper investigates to what extent individual self-selection into different markets can be explained by individuals’ risk preferences, overconfidence and market expectations. In a laboratory experiment subjects choose to enter one of three markets. The markets vary in their degree of financial uncertainty because the number and the level of prizes are different across markets. After entering a market subjects compete in a contest for the given prizes. Depending on one of two treatments the contests are described by either a deterministic or a stochastic prize allocation rule. We show that sorting patterns lead to systematic differences in the composition of competitors between markets (market composition effects) and that risk preferences and overconfidence account for self-selection into the market with the highest financial uncertainty.
Keywords: Competition, contest, self-selection, sorting, risk preferences, overconfidence, experiment
JEL Classification: C91, D44, D72, D80
Suggested Citation: Suggested Citation