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Contest Theory


Contest Theory, illustration

A variety of Internet online services are designed based on contests. A canonical example is crowdsourcing services, which solicit solutions to tasks by open calls to online communities. Here the tasks can be of different categories, such as art design, software development, data-science problems, and various challenges such as planetary-scale locating of objects.12, 28 These services operate under certain contest rules that include specifying a prize allocation mechanism, for example, awarding only a first-place prize or several position prizes. The prizes can be monetary, or in-kind rewards such as in terms of attention, status, or computing resources, for example, CPU, bandwidth, and storage. We refer to a contest as any situation in which agents invest irreversible and costly efforts toward winning a prize, which is allocated based on relative performance. We use the term "contest theory" in a broad sense to refer to a set of theories developed for the better understanding and informed design of contests.

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A central question in contest theory is: How to allocate prizes to maximize a desired objective? The objective may be to maximize the utility of production to the agent who solicits solutions to a task, or to the whole society. The question of how to allocate prizes was studied as early as 1902 by Galton.15 A study of how to allocate prizes necessitates to consider the incentives of contestants, who act strategically in investing costly production efforts.1,11,44 Game theory models of contests have been studied in auction theory, economic theory, operations research, as well as theoretical biology; for example, Bishop and Smith.3 The use of compensation schemes based on an individual's ordinal rank rather than absolute performance in firms have been studied by economists; for example, Lazear and Rosen.27 Game theory and pertinent computational questions have been studied by computer scientists.31,33,36 Several new contributions have been made on optimal allocation of prizes in crowdsourcing contests, equilibrium outcomes in games that model simultaneous contests, and the worst-case efficiency of production in equilibrium outcomes of various games that model contests.


 

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