Elimination contests, in which contestants are initially divided into pairs or groups to determine who goes through to later rounds, rarely produce the ''best'' winner. That is the central finding of research by Jun Zhang and Ruqu Wang, published in the March 2009 issue of the Economic Journal.
The key driver of whether a multi-stage contest produces the best winner is how much information is revealed in early rounds. According to this study, when no information is revealed, the outcome is most efficient. When information is partially revealed, the entries to the final round are efficient, while the final round itself is not. And when information is fully revealed, even the entries to the final round are not efficient.
This research has important applications in situations where contest organisers can control the amount of information released to contestants. The US Federal Election Commission, for example, can have different policies on whether election candidates should reveal the amount of money they raise during a campaign. And school officials can decide whether to reveal students'' scores in each round of science
Based on the results of this research, more information revelation in interim rounds leads to a less efficient outcome. It suggests that it is more efficient for a firm not to reveal information about those who are competing for promotions, that it is more efficient for school officials to keep scores secret in various stages of science competitions, and that privacy laws improve the efficiency of our society.
Due to the limited number of contestants that can take part in a given contest, elimination contests are widely adopted to select winners when there are many contestants. Examples include R&D races, political elections, competitions for promotions within certain organisations, lobbying, etc.
In elimination contests, contestants are initially divided into a few groups and competitions within each group are held first. The winners from each group compete again in later stages, and the losers are eliminated from the competition.
Zhang and Wang focus on the amount of information revealed between rounds of elimination. They choose the simplest model: two rounds. They use the notion of a contestant''s valuation for the prize to be won to represent how strong a contestant is. A contestant with a higher valuation means a lower effort cost per dollar of prize, and is a better choice of winner.
Since valuations are private information of the contestants, information about the performance of a contestant in the first round matters as it can reveal the contestant''s valuation to the opponent in the second round.
The research shows that when no information is revealed in the interim round, the contestant with the highest valuation of the prize will have the best performance in every round and will win the contest. In this situation, elimination contests will select the best contestant.
But in most elimination contests, the performances of the contestants in the first round may be partially or fully revealed. In sports competition, for example, the performance of each team in each stage of the competition is for public viewing and absolutely not to be concealed. And in competition for promotions within a firm, the performance of different workers can also be partially observed by each other.
In these situations, elimination contests may be unable to select the best contestant.
''The Role of Information Revelation in Elimination Contests'' by Jun Zhang and Ruqu Wang is published in the March 2009 issue of the Economic Journal.