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Distribution of Resources in a Competitive Environment

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  • Judith Avrahami
  • Yaakov Kareev

Abstract

When two agents of unequal strength compete, the stronger one is expected to always win the competition. This expectation is based on the assumption that evaluation of performance is flawless. If, however, the agents are evaluated on the basis of only a small sample of their performance, the weaker agent still stands a chance of winning occasionally. A theoretical analysis indicates that for this to happen, the weaker agent must introduce variability into the effort he or she invests in the behavior, such that on some occasions the weaker agent's level of performance is as high as that of the stronger agent, whereas on others it is null. This, in turn, would drive the stronger agent to introduce variability into his or her behavior. We model this situation in a game, present its game-theoretic solution, and report an experiment, involving 144 individuals, in which we tested whether players are actually sensitive to their relative strengths and know how to allocate their resources given those relative strengths. Our results indicate that they do.

Suggested Citation

  • Judith Avrahami & Yaakov Kareev, 2007. "Distribution of Resources in a Competitive Environment," Discussion Paper Series dp465, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    • Handle: RePEc:huj:dispap:dp465
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    References listed on IDEAS

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    1. Sergiu Hart, 2008. "Discrete Colonel Blotto and General Lotto games," International Journal of Game Theory, Springer;Game Theory Society, vol. 36(3), pages 441-460, March.
    2. Judith Avrahami & Werner Güth & Yaakov Kareev & Tobias Uske, 2007. "On the Incentive Effects of Uncertainty in Monitoring Agents - A Theoretical and Experimental Analysis," Jena Economics Research Papers 2007-093, Friedrich-Schiller-University Jena.
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