Essays on Contests, Coordination Games, and Matching

Abstract

In this thesis, I use theory and experiments (sometimes only experiments), to investigate the impact of agents’ heterogeneity on economic environments such as tournaments, decentralized matching, and coordination games. The first chapter analyzes a coordination game (a stag-hunt game) in which one of the equilibria gives a higher payoff to the players, but playing the corresponding strategy profile leading to this equilibrium entails strategic risk. In this chapter, I ask whether agents can coordinate on the equilibrium that gives a higher payoff when they are provided information about an opponent’s risk aversion. Two key insights result from my analysis. First, a subject’s propensity to choose the risky action depends on her opponent’s risk attitude. Second, this propensity is independent of the subject’s own risk attitude. The second chapter compares the performance of two tournament designs when contestants are heterogeneous in their abilities. One of the designs is the standard winner-take-all (WTA) tournament, which is common both in the literature and in the real world. The alternative tournament design involves two tournaments with different prizes (parallel tournaments) where individuals choose which tournament to enter before competing. With a simple model and an experiment, I show that when contestants’ abilities differ substantially, the designer makes higher profit using parallel tournaments. Nevertheless, when the contestants’ abilities are similar, the designer makes higher profit in the WTA tournament. The third chapter studies a two-period decentralized matching game under complete information with frictions in the form of time discounting. I find that the sub-game perfect Nash equilibrium outcome of this game coincides with a stable outcome for most preference profiles. The selection of which stable outcome emerges depends on the level of frictions: the sub-game perfect Nash equilibrium outcome of this game yields the firm-optimal stable match (a worker-optimal stable match) when the time discount is sufficiently high or low (intermediate values).