Self-Selection into Contests: Theory and Experimental Evidence

52 Pages Posted: 16 Jun 2013

See all articles by Yann Girard

Yann Girard

Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM)

Stefan Goldbach

Technical University of Darmstadt

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

Girard, Yann and Goldbach, Stefan, Self-Selection into Contests: Theory and Experimental Evidence (June 1, 2013). Available at SSRN: https://ssrn.com/abstract=2279135 or http://dx.doi.org/10.2139/ssrn.2279135

Yann Girard (Contact Author)

Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM) ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Stefan Goldbach

Technical University of Darmstadt ( email )

Marktplatz 15
Darmstadt, Hesse D-64289
Germany

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