In competitive settings, disparities in player strength are common. It is intuitively unclear whether a stronger player would opt for larger or smaller effort compared to weaker players. Larger effort could leverage their strength, while lower effort might be justified by their higher probability of winning regardless of effort. We analyze multi-prize contests with three or more heterogeneous players, exploring when stronger players exert larger or lower effort. To rank efforts, it suffices to compare marginal utilities in situations where efforts are equal. Effort ranking depends on differences in hazard rates (which are smaller for stronger players) and reversed hazard rates (which are larger for stronger players). Compared to weaker players, stronger players choose larger effort in winner-takes-all contests and lower effort in loser-gets-nothing contests. Effort rankings can be non-monotonic in contests with several identical prizes, and they depend on the slopes of players’ pdfs in contests with linear prize structure.

We characterize the production technologies that generate contests strategically equivalent to the standard additive Lazear-Rosen tournament. A contest with a general production function is strategically equivalent to the additive benchmark if and only if the marginal rate of technical substitution (MRTS) between effort and skill is multiplicatively separable, a characterization that links strategically equivalent contests to the classical theory of additiveutility representations. The equivalence class is large: it contains the multiplicative, Cobb-Douglas, CES, and quasilinear technologies, so that, within the class, additivity is a normalization rather than an economic assumption, and existing results for additive contests, e.g., on optimal prize structures and on the effects of noise on effort, extend to the entire class. Strategic equivalence does not, however, make the technology irrelevant for contest design: the equivalence preserves only ordinal information, whereas optimal prize structures dependon cardinal features of the environment. Strategically equivalent technologies can therefore call for opposite prize structures under the same skill distribution. In particular, when skills are exponentially distributed, the case in which all prize structures perform equally well in the additive model, the monotonicity of the MRTS in skill alone determines whether thewinner-takes-all or the loser-gets-nothing contest is optimal.

We study how the presence of promotion competition in the labor market affects household specialization patterns. By embedding a promotion tournament model in a household setting, we show that specialization can emerge as a consequence of competitive work incentives. This specialization outcome, in which only one spouse invests heavily in his or her career, can be welfare superior to a situation in which both spouses invest equally in their careers. The reason is that household specialization reduces the intensity of competition and provides households with consumption smoothing. The specialization result is obtained in a setting where spouses are equally competitive in the labor market and there is no household production. It is also robust to several modifications of the model, such as varying the number of households, two spouses competing for promotion in the same workplace, and the inclusion of household production.

Although gender differences in overconfidence have been extensively documented in empirical research, their consequences for labor market outcomes remain underexplored in the theoretical literature. This paper develops a promotion-signaling model with competitive incentives and endogenously determined wages to examine how men’s relatively higher overconfidence contributes to gender differences in career advancement and earnings. Our theoretical results show that overconfident workers exert more effort, are promoted more often, and earn higher wages across hierarchical levels, despite having lower expected ability conditional on promotion. This increased effort also promotes human capital accumulation through learning by doing, which ultimately increases productivity. At the same time, overconfidence acts as a double-edged sword: while it facilitates favorable career outcomes through higher promotion probabilities and wages, it also imposes greater effort costs and can discourage peers, potentially undermining overall outcomes in certain contexts.

Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, ‘cross-game learning’ may rather be understood as ‘cross-game transfer’, as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders.

We study how the presence of promotion competition in the labor market affects household specialization patterns. By embedding a promotion tournament model in a household setting, we show that specialization can emerge as a consequence of competitive work incentives. This specialization outcome, in which only one spouse invests heavily in his or her career, can be welfare superior to a situation in which both spouses invest equally in their careers. The reason is that household specialization reduces the intensity of competitionand provides households with consumption smoothing. The specialization result is obtained in a setting where spouses are equally competitive in the labor market and there is no household production. It is also robust to several modifications of the model, such as varying the number of households, two spouses competing for promotion in the same workplace, and the inclusion of household production.

In competitive settings, disparities in player strength are common. It is intuitively unclear whether a stronger player would opt for larger or smaller effort compared to weaker players. Larger effort could leverage their strength, while lower effort might be justified by their higher probability of winning regardless of effort. We analyze contests with three or more players, exploring when stronger players exert larger or lower effort. To rank efforts, it suffices to compare marginal utilities insituations where efforts are equal. Effort ranking depends on differences in hazardrates (which are smaller for stronger players) and reversed hazard rates (which are larger for stronger players). Compared to weaker players, stronger players choose larger effort in winner-takes-all contests and lower effort in loser-gets-nothing contests. Effort rankings can be non-monotonic in contests with several identical prizes, and they depend on the slopes of players’ pdfs in contests with linear prize structure.

In competitive settings, disparities in player strength are common. It is intuitively unclear whether a stronger player would opt for larger or smaller effort compared to weaker players. Larger effort could leverage their strength, while lowereffort might be justified by their higher probability of winning regardless of effort.We analyze contests with three or more players, exploring when stronger players exert larger or lower effort. To rank efforts, it suffices to compare marginal utilities insituations where efforts are equal. Effort ranking depends on differences in hazardrates (which are smaller for stronger players) and reversed hazard rates (which arelarger for stronger players). Compared to weaker players, stronger players chooselarger effort in winner-takes-all contests and lower effort in loser-gets-nothing contests. Effort rankings can be non-monotonic in contests with several identical prizes,and they depend on the slopes of players’ pdfs in contests with linear prize structure.

Gender differences in overconfidence have been extensively documented in the empirical literature, but the implications for labor market outcomes are not well understood. In this paper, we analyze how men’s relatively higher overconfidence, combined with competitive job incentives, affects gender equality in the labor market and discuss policy implications. The vehicle of analysis is a promotion-signaling model in which wages are realistically determined by market forces. We find that overconfident workers exert more effort to be promoted, and even though they have lower expected ability conditional on promotion, they are more likely to be promoted and experience superior wage growth. Because overconfident workers compete fiercely, they incur higher effort costs and discourage their peers, and we find that overconfidence can be either self-serving or self-defeating.

We study how subjects deal with fatigue in a sequence of tournaments that are linked through fatigue spillovers. We develop a model that allows us to predict the consequences of varying the severity of competition as well as the ease of recovery over time. Even in the presence of fatigue, effort should positively respond to an increase in incentives in a single tournament. A less obvious consequence is the need for strategic resting before and after that tournament. We test our theory using a chosen-effort experiment. While an increase in incentives in the second of three tournaments does lead to higher effort in that tournament, we observe only a tendency for the predicted strategic resting before and after. The increase in incentives does not yield the predicted higher total effort. When recovery is made harder, effort responds negatively as predicted. We complement our study with a real-effort task. Subjects seem to have difficulties simultaneously dealing with physical fatigue as well as the cognitive problem of allocating effort over time.