Discussion paper
DP14457 How noise affects effort in tournaments
It is commonly understood that making a tournament ranking process more noisy leads to a reduction in effort exerted by players in the tournament. But what exactly does it mean to have ``more noise?'' We address this question and show that the level of risk, as measured by the variance or the second-order stochastic dominance order, is not the answer, in general. For rank-order tournaments with arbitrary prizes, equilibrium effort decreases as noise becomes more dispersed, in the sense of the dispersive order. For winner-take-all tournaments, we identify a weaker version of the dispersive order we call quantile stochastic dominance, as well as other orders and entropy measures linking equilibrium effort and noise.
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