Jeff Ely Microeconomic Theory, Game Theory, Behavioral Economics, Evolution

Prizes and Feedback in Dynamic Contests

Prizes and Feedback in Dynamic Contests Joint with George Georgiadis and Luis Rayo

We study contests in which players privately choose when to exert costly effort toward a random success. A designer seeks to maximize total effort by choosing how to allocate a fixed prize and what feedback to provide during the contest. The optimal design is a “weighted egalitarian” contest, which resembles a raffle. The designer withholds feedback during an early phase, then reveals successes immediately thereafter. Players work continuously during the early phase, then continue only until success during the late one. Those succeeding early receive more raffle tickets, and hence a higher probability of winning, than those succeeding later.