This paper examines experimentally a contest in which the organizer takes a share of the prize if there is a tie. Our hypothesis is that contestants perceive this as unfair and that this perception has a non-proportional effect on the bids. The results indicate that despite the very low probability of a tie, contestants over-weight its importance and sharply decrease their bids if the organizer takes a share. We show that a fair contest is the optimal strategy for the organizer since the increase in the average bid in a "fair" contest is higher than the organizer's decrease in expected value from losing his share in a tie.
- All-pay contest
- Fairness effect