Experimental and Behavioural Economics Seminar Series - Lionel Page (University of Queensland)

Title: Momentum through Strategic Complementarity

Abstract: Why does success sometimes breed success in dynamic competition? Existing work on momentum has largely focused on mechanisms operating through individual behaviour, such as changing incentives, beliefs, or psychological responses to winning and losing. We study a different channel arising from strategic interaction within teams. In a weakest-link team contest, individual efforts are strategic complements: the return to exerting high effort depends on the expected contribution of one's teammate. Competitive outcomes can therefore affect subsequent behaviour because they provide information about a persistent strategic partner. In that setting, we find that a (random) win substantially increases subsequent effort relative to a (random) loss. The effect operates largely through losers reducing effort and translates into higher team minimum effort. The results suggest that competitive outcomes can generate momentum through rational inference combined with strategic complementarity. Outcomes provide information about the likely contribution of a persistent teammate; this information changes the return to one's own effort and thereby propagates into subsequent collective performance.