1. Should Managers Use Team-Based Contests?
Hua Chen / Noah Lim
Jasmin Sulerz
Experimental and Behavioral Economics SS 2016

2. Agenda Overview I Introduction Contests and Assumptions II Experiments
III
Results and Discussion

3. Research Question
Previous literature has focused on three major questions:
Individual-based contests: What are the optimal number of winners and price values
Team-based contests: Relative performance of team-based incentive contracts
Team-based contests: Influence of team-based characteristics, prize structure and team communication
Should managers organize employees to compete as individuals or to compete with each other in teams?
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4. Guilt aversion – Individuals would like to avoid this emotion
Social preference if individuals feel that do not meet expectations with a potential reduction of payoff for a relationship partner
Team-based contests: Payoff based on team performance in comparison with competing teams(- own decision cost)

5. Behavioral Economics Challenges Standard Economic Assumptions
Free Riding Problem
Effort levels expected in team-based (TB) contests will be lower than efforts in individual-based (IB) contests
Conventional economics theory: employees competing in team-based competitions will „fail to internalize the benefits that accrue to other members of the team when making effort decisions“
Behavioral Economics
Individuals are not purely self-interested
Social preferences: Altriusm, inequality aversion, social comparisons, peer-induced fairness
Furthermore, individual social preferences can vary depending on factors such as familiarity with other players and whether outcomes are made public
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6. Experiments Design Experiment 1 Experiment 2 Experiment 3 Experiment 4
2x2 experiment design in TB and IB contest across two social setting (A & B)
Degree of guilt aversion is expected to be stronger in an environment where team members feel more socially connected
Validation Experiments
Experiment 2
One shot: Team members were paired with a teammate just once
Experiment 3
Guilt aversion test: Participants do not know their partners final number
Experiment 4
Psychological drivers: Values of the winning and the losing price (wH and wL) were changed

7. Experiment 1 – Procedure and Results
Social Condition A
Seated apart from each other
Random and anonymous pairing
15 rounds, rematch after 5 rounds
Social Condition B
Seated randomly in groups of 4
Introduction & Socializing
Sudoku puzzle
Randomly matched with one of the team members they socialized with  increase level of guilt aversion

8. Experiment 1 – Mean Effort Decisions Across Decision Rounds

9. Experiments 2, 3 and 4 – Validation Results
One shot: Team members were paired with a teammate just once
Experiment 3
Guilt aversion test: Participants do not know their partners final number
Experiment 4
Psychological drivers: Values of the winning and the losing price (wH and wL) were changed

10. Results: Team-based Contests Can Induce Higher Efforts Than Individual-Based Contests
If guilt aversion is sufficiently strong, efforts in Team-based contests should be higher relative to individual-based contests
Socializing with team members increases the effort decisions since they increase the potential for guilt aversion
Guilt aversion can be hampered if team member contributions are not made public
Future Research: Compare TB and IB contests with more contestants and more complex prize structures
Suggestions for Real-Life Managers
Team up employees which know each other well as teammates
Conduct social activities
Managers should provide the opportunity to observe each others contribultions
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13. Critical Remarks From the Authors I/II
Utility specification may not the the best one – other functional forms may predict the behavior better across a wider array of TB contest
Other than guilt aversion there might be other psychological drivers that can influence effort levels
i.e. being the team member which contributes the most (if intra-group comparisons are possible)
Heterogenous team members: Nature and degree of guilt aversion may be different and might be more difficult to implement
i.e. weaker contestant might feel more guilt if matched with strong contestant and the strong contastant may be relucant to be matched with the weak contestant from the beginning
Future Research: Compare TB and IB contest with more contestants and more complex prize structures

14. Critical Remarks From the Authors II/II
4. Complementarities among team members may influence effectiveness of team-based incentives compared to individual-based incentives
i.e. team-based bonuses of factory workers can raise productivity more than individual-based bonuses
More than 2 team members: Incentives may be higher to free ride but may
also increase disutility if they are responsible for a decline in the payoffs of
their team members (depending in the relationship among team members)
i.e. if team prize can be split unevenly within-team competition may increase and guilt aversion decline
Future Research: Compare TB and IB contest with more contestants and more complex prize structures