The effect of repeated shocks on individual competitiveness : an experiment

Abstract

Individual competitiveness has gained growing interest in the behavioral and experimental economics literature due to its ability to predict labor market outcomes and educational choices. People who are more competitive tend to choose challenging fields for higher education, are more likely to earn more after graduation, and are often more successful in career than the less competitive. It is also argued that the gender difference in the preference to compete is a major reason behind the underrepresentation of women in the labor market.

While the vast majority of literature has focused on studying the heterogeneity across individuals, it is important to study how negative shocks can potentially disrupt one’s willingness to compete. Shocks can directly or indirectly affect an individual’s productivity. Therefore, they may also alter their decision to choose competitive environments.

This thesis aims to study, using an incentivized online labor market experiment, the effect of repeated shocks on individual competitiveness. Participants perform a real-effort task for multiple rounds under repeated shocks and face a decision to enter a tournament. Furthermore, it explores how resilience in performance may be linked with greater competitiveness along with gender differences.

The results of the experiment suggest that repeated shocks can negatively affect competitiveness, and that performance resilience alone may not be sufficient to tackle this effect. Additionally, they indicate that both males and females are equally likely to be affected by shocks. While there is a slight gender difference in competitiveness, it may be due to the significant gap in confidence between the two genders.

Even though the experiment follows a simple design framework, and the magnitude of the shock are small, it has several economic implications. First, demand transitions in the labor market can substantially reduce competitive choices, mainly due to the uncertainty of payoffs. Second, belief about oneself can play a larger role in explaining someone’s competitiveness than their task performance. Third, the existing gender gap in the labor market may be reduced by raising the overall confidence of women and with the help of advice.