Template-Type: ReDIF-Paper 1.0
Title: Can being behind get you ahead? Reference Dependence and Asymmetric Equilibria in an Unfair Tournament
Author-Name: Jan Bergerhoff
Author-Email: j.bergerhoff@uni-bonn.de
Author-Name: Agnes Vosen
Author-Email: agnes.vosen@uni-bonn.de
Classification-JEL: C72, D63, D44
Keywords: loss aversion, gain-loss utility, normal distribution, competition

Abstract: Everyone remembers a plot where a disadvantaged individual facing the prospect of
failure, spends more effort, turns around the game and wins unexpectedly. Most tournament
theories, however, predict the opposite pattern and see the disadvantaged agent
investing less effort. We show that ’turn arounds’, i.e. situations where the trailing
player spends more effort and becomes the likely winner of the tournament, can be the
outcome of a Nash equilibrium when the initial unevenness is known and players have
reference-dependent preferences. Under certain conditions, they are the only pure strategy
equilibrium. If the initial unevenness is large enough the advantaged player will
always invest the most effort. We also show that equilibria in which the player behind
catches up without becoming the likely winner do not exist.

Note: 
Length: 39
Creation-Date: 2015-02 
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse03_2015.pdf  
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse03_2015