We investigate experimentally the relationship between risk and incentives in a principal–agent setting. In contrast to the existing empirical literature that describes such relationship as ‘tenuous’ or inconclusive, we find a clear negative relationship—supporting the prediction of the standard theoretical model. Specifically, we find that principals reduce the size of the offered piece rates with an increase in risk and instead provide positive fixed wages. Furthermore, we find no relationship between the variance in the performance and the effort choice of (...) the agent, and a strong positive relationship between the effort choice of the agents and the offered piece rates as well as fixed wage, suggesting positive reciprocity. Finally, we find evidence of social projection by the principals regarding the agents’ degree of risk aversion. (shrink)

Using a two-player Tullock-type contest, we show that intuitively and structurally different contests can be strategically equivalent. Strategically equivalent contests generate the same best response functions and, as a result, the same equilibrium efforts. However, strategically equivalent contests may yield different equilibrium payoffs. We propose a simple two-step procedure to identify strategically equivalent contests. Using this procedure, we identify contests that are strategically equivalent to the original Tullock contest, and provide new examples of strategically equivalent contests. Finally, we discuss possible (...) contest design applications and avenues for future theoretical and empirical research. (shrink)

This commentary complements the article by De Dreu and Gross from the perspectives of behavioral economics and game theory. It aims to provide a bridge between psychology/neuroscience research and economics research in attack-and-defense by stipulating relevant literature, clarifying theoretical structures, and suggesting improvements in experimental designs and possible further investigations.

Most laboratory experiments studying Tullock contest games find that bids significantly exceed the risk-neutral equilibrium predictions. We test the generalisability of these results by comparing a typical experimental implementation of a contest against the familiar institution of a ticket-based raffle. We find that in the raffle initial bid levels are significantly lower and bids adjust more rapidly towards expected-earnings best responses. We demonstrate the robustness of our results by replicating them across two continents at two university labs with contrasting student (...) profiles. (shrink)