Winner Takes It All. An Experimental Test of Boudon’s Competition Model

In many situations, competition centers around a highly valued good. If the good is scarce and, in extreme cases, is only made available to one winner, it is a “winner takes it all” game. Such competitions can be observed in many areas of modern society. Examples include tennis tournaments, architectural competitions and presidential elections. Boudon's competition model and similar models from economics and game theory predict the conditions (value of the prize, cost of the investment, number of potential candidates) under which players will invest in participating in the competition. Risk loving can also play a role. It is often found that the willingness to take risks is “too high” and lies above the threshold of risk-neutral, rational players. In this case, there are many losers who have to write off their investment costs, resulting in relative deprivation and frustration.

We test the behavior in the Winner takes it all competition with repeated one-shot games in the DecisionScienceLab at ETH Zurich. Repetition allows us to control for learning effects. We also vary the number of prizes or mobility regime (winner takes it all versus multiple winners) and measure the willingness to take risks with a virtual test that simulates an inflatable balloon. The larger the volume, the higher the payout, but also the more likely the balloon is to burst. We measure the extent of frustration with the “Joy of Destruction Test” and social norms on investment decisions. The experiment provides information on the extent to which the predictions of the competition model match the results found in the experiment.