Optimal Stochastic Feedback in Asymmetric Dynamic Contests

Abstract

Contests, in which contestants compete at their own expenses for prizes offered by a contest holder, have become the foundational primitive of many theories of competition. Recently, the focus in contest research has turned to the role of in-contest performance feedback. The extant literature on feedback has focused on specific ad-hoc policies and hence failed to more broadly characterize optimal feedback policies. In this note we solve a general formulation of a contest involving feedback, and thus characterize the optimal feedback policy in a very wide class of (stochastic) feedback policies. We find that, in many settings where informative feedback is useful, feedback is optimal when it is both truthful and fully informative.