Mis-Judging Merit: The Effects of Adjudication Errors in Contests

Adjudication errors in contests have a dual nature: they imply at the same time the unjust exclusion of a meritorious candidate (exclusion error) and the unjust inclusion of a non-meritorious one (inclusion error). We study theoretically and experimentally the effects of adjudication errors on contestants' effort, explicitly disentangling the respective effects of exclusion and inclusion errors. We show how behavioral aspects, such as risk aversion, loss aversion and the framing of the incentive scheme (prize vs. penalty) shape the effects of judgement errors on effort. The experimental findings indicate that mis-judgements negatively affect bids, with exclusion and inclusion er- rors contributing equally to the disincentive effects of adjudication errors. A penalty framing significantly increases bids, relative to a prize framing, both in the absence of judgement errors and in the presence of adjudication errors. On the other hand, no significant interaction is found between the framing of the incentive scheme and the disincentive effects of judgement errors.