SFB 649 Discussion Paper 2011-009 Exclusion in the All-Pay Auction: An Experimental Investigation

Contest or auction designers who want to maximize the overall revenue are frequently con-cerned with a trade-o ¤ between contest homogeneity and inclusion of contestants with high valuations. In our experimental study, we \u85nd that it is not pro\u85table to exclude the most able contestant in favor of greater homogeneity among the remaining contestants, even if the theoretical exclusion principle predicts otherwise. This is because the strongest contestants con-siderably overexert. A possible explanation is that these contestants are afraid they will regret a low but risky bid if they lose and thus prefer a strategy which gives them a low but secure pay-o¤