When Unequals Compete: Where Do They Stand After the Competition?

Area of Science:

• Behavioral Economics
• Game Theory
• Experimental Economics

Background:

• Inequality in competitive outcomes is a persistent issue.
• The impact of competition structure on relative status is not fully understood.
• Previous research suggests stronger competitors often improve their standing at the expense of weaker ones.

Purpose of the Study:

• To experimentally investigate how competition design affects the relative standing of unequal competitors.
• To determine the influence of reward size and outcome uncertainty on competitive dynamics.
• To analyze the impact on weaker agents in an investment game setting.

Main Methods:

• An investment game with 208 participants competing with unequal endowed budgets.
• Two competition formats: an all-pay-auction contest and a Colonel Blotto contest.
• Varying reward sizes and levels of uncertainty in winner determination.

Main Results:

• Weaker agents' relative standing worsened after competition, consistent with game theory predictions.
• The negative impact on weaker agents intensified with larger reward sizes.
• The Colonel Blotto game, with higher uncertainty, mitigated the worsening of weaker agents' relative standing.

Conclusions:

• Competition can exacerbate inequality, particularly when rewards are high.
• Competition design, specifically outcome uncertainty, plays a crucial role in moderating status changes.
• Findings have implications for designing fair competitive environments and understanding economic inequality.