Rent Seeking/Lobbying Game

Rent seeking/Lobbying game.

 Matchings: The experiment will consist of a series of rounds. In each round, you will be matched with 3 other people selected at random from the 3 other participants. There is a single monetary "prize" worth a specified number of dollars to the person who obtains it. Note: You will be matched with the same group of 3 other people in all rounds.

 Interdependence: The decisions that you and the 3 other people in your group make will determine the chances that each of you have of obtaining the prize.

 Lobbying Efforts: Both you and the 3 other people will begin by choosing a "lobbying effort." You cannot see their efforts while choosing yours, and vice versa.

 Random Prize Award: Your lobbying effort will be a number, and the probability that you obtain the monetary "prize" will be the proportion of the total lobbying effort that is yours. So if your efforts are all equal, you will each have a 1/4 chance of obtaining the prize, and in general, your chance of obtaining the prize is your effort divided by the sum of all efforts, including your own. If select an effort of 0, you will not have a chance of winning the prize.  Lobbying Cost: Each unit of lobbying effort will have a specified cost, so X units will have a total cost of X times this per unit cost. For example, if the units represent lobbyists hired, then the unit cost is a lobbyist's salary. Once you choose an effort level, you will incur the associated cost, whether or not you obtain the prize. So a higher effort produces both a higher chance of getting the prize, but also a higher lobbying cost.

 Gains and Losses: The person who obtains the prize earns the prize value minus the cost of their own lobbying effort, and the other people in the group earn a negative amount, the lobbying cost. Positive earnings will be added to earnings from previous rounds, and negative earnings will be subtracted.

 Working Capital: Each of you will be given an initial amount of money, so that gains will be added to this amount, and losses will be subtracted from it. This initial working capital will show up in your cumulative earnings at the start of round 1, and it will be the same for everyone. There will be no subsequent augmentation of this amount.

 Example 1: If you choose an effort of 1 and each of the 3 others also chooses 1, then the total effort is 4, and you each have a 1/4 chance of getting the prize. So the winner would be decided by the computer version of drawing straws. If each unit of effort costs a dollar and the prize is worth $X, then the person obtaining the prize would earn X - 1 dollars, and the other person would earn -$1.

 Example 2: If one of you chooses an effort of 2 and each of the 3 others chooses an effort of 1, then one of you has a 2/5 chance of winning the prize and the 3 others each have a 1/5 chance. The computer would draw a random number in a manner that the first person's chance of winning is twice as great as the chances for the each of the others.

 Note: The numbers used in the actual experiment to follow will be much larger than these numbers, which are for illustrative purposes only. Next let's look at the actual numbers that will be use in the experiment.

 Allowable Lobbying Efforts: At the beginning of each round, you will choose a lobbying effort that can be any number between and including 0 and 13. The 3 people who you are matched with will also choose efforts between and including 0 and 13. Each unit of effort will cost $3000, so your lobbying cost must be between $0.00 and $39,000.00.

 Prize Value: The prize will be worth $16,000.00 to the person who obtains it, and your chance of getting the prize is determined by your lobbying effort as a fraction of the total effort (yours plus the decisions of the 3 others).

 Earnings: The person who obtains the prize will earn $16,000.00 minus their own lobbying effort cost, and each of the 3 other people will have negative earnings, i.e. minus their own lobbying effort cost.

 Initial Capital: You will begin the first round with a money balance of $100,000.00, to which gains will be added and losses will be subtracted. In the following examples, please use the mouse button to select the best answer. Question 1: Suppose that your effort X is twice as high as the sum of the others' efforts. a) Then there is a 2/3 chance that you obtain the prize, and there is NO chance of ending up with a loss. b) Then there is a 1/3 chance that you will NOT obtain the prize and end up with a loss.

Question 2: Suppose you are thinking about an effort decision and then decide to double it. a) Then your chance of obtaining the prize has increased. b) Then your chance of obtaining the prize has doubled.

------Question 1: Suppose that your effort X is twice as high as the sum of the others' efforts. (a) Then there is a 2/3 chance that you obtain the prize, and there is NO chance of ending up with a loss. (b) Then there is a 1/3 chance that you will NOT obtain the prize and end up with a loss. Your answer, (a) is Incorrect. You do have a 2/3 chance of getting the prize, but you still have to pay your lobbying cost if you do not get the prize, which will result in negative earnings.

Question 2: Suppose you are thinking about an effort decision and then decide to double it. (a) Then your chance of obtaining the prize has increased. (b) Then your chance of obtaining the prize has doubled. Your answer, (a) is Correct. An increase in lobbying effort will always increase the chance of getting the prize, but the extent of the increase depends on the others' efforts. ------

Instructions Summary (ID = )

 Matchings: Please remember that you will be matched with the same people in all rounds.

 Earnings: All people will begin by choosing a number or "lobbying effort" between and including 0 and 13. The cost of this effort is $3,000.00 times the effort, and this cost will be subtracted from your earnings. A higher effort means a higher chance of obtaining the $16,000.00 prize.

 Random Prize Award: It is as if each unit of effort means putting another card with your name on the table. The computer essentially collects the cards played by you and the others in your group, shuffles them, and draws one to determine who receives the $16,000.00 prize.

 Reported Chances of Success: In addition, each round you will be asked to report the "chances out of 100" that you will obtain the prize, in light of the effort decision that you have selected. A report of 0 means that you think there is no chance that you will win, a report of 100 means that you are sure to win, a report above 50 means that you think you are more likely to win than not, a report below 50 means that you think you are less likely to win than not, etc.

 Rounds: There will be a number of rounds, and you are matched with the same people in all rounds.