Asymmetric Tournaments, Equal Opportunity Laws and Affirmative Action - Some Experimental Results

Asymmetric Tournaments, Equal

Opportunity Laws and Affirmative

Action: Some Experimental Results

Andrew Schotter and Keith Weigelt (1992)

Diana Pușcaș | 22.01.2015

Assymetric Tournaments, Equal Opportunity Laws and Affirmative Action : Some Experimental Results| 22.01.2015Seite 2

Contents:

• Paper Summary

• Types of Tournaments

• Theoretical Model

• Experimental Design

• Results

• Conclusions

• Questions and discussion


Paper Summary

Ways of dealing with inequity on the labour market:

• Equal opportunity laws: policies which prevent discrimination

of employee groups

• Affirmative action programs: hiring and promotion policies

which favour historically disadvantaged minorities (females,

ethnic minorities, etc.); a form of positive discrimination

Main research questions :

• How do these initiatives influence effort levels and overall firm performance?

• Is there a trade-off between equity and efficiency?

The researchers model these laws as rank order tournaments andstudy them through lab experiments.


Types of Tournaments

• Symmetrical – agents are identical and treated equally by the

tournament rules

• Asymmetrical:

• Uneven – agents have different ability levels (i.e. different effort cost

functions) – targeted by affirmative action programs

• Unfair – agents are identical, but the tournament rules favour one of

them (the performance of the disadvantaged agent must exceed the

performance of the other by a k>0 in order to win) – targeted by

equal opportunity laws

Equal opportunity laws remove unfair rules symmetrical tournaments

Affirmative action programs induce an unfair tournament; in order to

compensate the disadvantaged agent for their higher cost of effort, they

bend the rules in their favour uneven and unfair tournaments


Theoretical Model

Utility functions for agents i and j:

Generated output:

Payment to agent i:

General equilibrium:

Symmetric tournament equilibrium:

Unfair tournament equilibrium:

Uneven tournament equilibrium:


Experimental Design

Subjects – economics students of New York University

• Each randomly chooses 20 envelopes out of 1000 - random numbers (from a uniform distribution over [-60, 60], corresponding to the shocks to productivity)

• Pairs of two subjects are formed randomly (physical identity hidden)

• Written instructions, payoff sheets and cost of effort functions are provided (all parameters are common knowledge)

• Subjects pick a number between 0 and 100 („decision number“ equivalent to effort)

• Afterwards, they open an envelope and add that number to their decision number to get their „total number“ for the round

• After each round they are informed who had the biggest total number and receive their respective payments (prize-cost of number chosen)

• After 20 identical rounds, the subjects received their final cumulative payoff (between $7 and $24)


Experimental Design

• In the case of the unfair tournament, one subject had to realise anoutput k units higher in order to win. K was known to both.

• For uneven tournaments, there was an α > 1 for one subject, butknown to both.

• Attention to language: „higher number subject“ instead of„winner“; M and m were called „fixed payments“ instead of„prizes“

• Reason: to deemphasize the game-like nature of the experiement anddraw attention to payoffs only, not to the satisfaction of being the„winner“

• Each subject participated in only one treatment

• 20 rounds instead of a one-shot experiment to allow for learningcurves since the task was complex. Results of the last 10 rounds areconsidered.


Experimental Design


Symmetric Tournaments

Behavior is consistent

with the predictions.

Predicted effort: 73.75

Observed effort

(rounds 11-20): 77.91


Unfair Tournaments

Experiment 2 Experiment 3

Advantaged Disadvantaged Advantaged Disadvantaged

Predicted effort 58.39 58.39 46.09 46.09

Observed effort 74.5 58.65 48.65 59.29

Predicted prob. of winning 0.687 0.805

Observed prob. of winning 0.898 0.827


Uneven Tournaments

Experiment 4 Experiment 5

Advantaged Disadvantaged Advantaged Disadvantaged

Predicted effort 74.51 37.26 76.06 19.02

Observed effort 78.83 37.06 77.33 18.47

Predicted prob. of winning 0.762 0.805

Observed prob. of winning 0.788 0.827


Dropping Out vs. Oversupply of Effort

More than half of

the disadvantaged

subjects in

experiment 5

dropped out (chose

effort levels < 6). By

contrast, those who

didn’t drop out

chose levels above

those predicted

(30.2 vs. 18.5)


Equal Opportunity Laws

Equal opportunity laws

increase the probability

of winning and the

payoff of disadvantaged

subjects.

They also increase total

tournament output and

therefore the firm’s

profit.


Affirmative Action

Low ability (effort cost)

difference: effort levels

fall for advantaged

subjects and stay the

same for the

disadvantaged. Total

output is lower. Probability

of winning and expected

payoff of the discriminated

group go up.

High ability (effort cost)

difference :

Dropout behavior is

eliminated, effort levels

and total tournament

output go up.


Conclusions

Main findings:

• Both affirmative action and equal opportunity laws benefit disadvantaged groups by increasing their probability of winning the big prize and by raising their total payoff.

• Equal opportunity laws increase the effort levels of all agents, generating higher profits for the firm.

• Affirmative action programs increase effort levels and firm profits only in cases of severe initial cost disadvantages of one agent. If the cost diferences are small, these programs might create efficiency losses for the firm.

• Behaviour is generally consistent with the theoretical prediction, except for the oversupply of effort => possible topic for further research.


Questions / Discussion

Question:

Why are affirmative action programs especially effective in the

cases where there is a severe cost disadvantage of one

group/agent?

Thank you for your attention!

Answer:

When an agent is significantly cost disadvantaged, they will have

a strong incentive to drop out and not supply any effort at all. In

this case, the intervention of affirmative action levels the playing

field and prevents the drop out behavior, thus greatly increasing

effort and output. When there is only a minor degree of cost

asymmetry, drop out behavior is rare and the benefit of

affirmative action is much smaller.

Asymmetric Tournaments, Equal Opportunity Laws and Affirmative Action - Some Experimental Results

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