Contests, Grand Prizes, and the Hot Hand

Abstract

Awarding a grand prize to the player who wins most often in a series of contests links the contests together and makes incentives in the current contest depend upon past performance. A lucky player who wins early faces relatively stronger incentives to exert effort because of his early success. As a consequence early winners are more likely to keep winning through the middle of the series. That is, a grand prize induces a hot hand. We develop this argument and assess it empirically using data from the Professional Golfers' Association Tour, before and after a grand prize, the season-ending Tour Championship, was introduced.