Seminar: Exclusive or not? An experimental analysis of parallel innovation contests

We study parallel innovation contests where contest organizers elicit solutions to innovation-related problems from solvers with limited (financial, time, cognitive) resources. The quality of a solver’s solution improves with their effort, yet it is also subject to an output uncertainty. Prior theoretical work shows that organizers should discourage solvers from participating in parallel innovation contests in environments with low output uncertainty, where contest outcomes are primarily driven by solver efforts. In this case, the standard theory predicts that organizers benefit from solvers focusing all of their efforts on a single “exclusive” contest rather than splitting their efforts across multiple “non-exclusive” contests. We test this prediction with controlled laboratory experiments using human subjects. Our main result is that non-exclusive contests are attractive to organizers even in environments with low output uncertainty where the theory favors exclusive contests. We explain this departure from the theory with two types of behavioral tendencies exhibited by two types of solvers. The first type of solvers focuses on their profits (expected awards minus costs), but exhibits cognitive limitations in anticipating the outcome of their actions, due to the inherent uncertainties in contest(s). The second type solely focuses on winning, ignoring the cost of effort, due to the substantial joy of winning they experience. These behavioral tendencies lead the observed effort levels to exhibit a lower average and higher variance than the theoretical predictions, thereby favoring the non-exclusive contest format.

This event will take place in T09-67.