Fight Alone or Together? The Need to Belong

This study compares contests with exogenous alliance formation under proportional sharing rules with contests among individual players in a laboratory setting. The standard equilibrium predictions are identical for all players because the proportional rule ensures the same payoff incentives for alliance and for single players (or players in individual contests). Alliance formation not only reduces the effort of alliance players but also discourages stand-alone players (especially women) from exerting substantial effort. Because over-dissipation is a wide-spread phenomenon in contest experiments, both alliance and stand-alone players benefit from alliance formation due to reduced over-dissipation. Behavioral factors such as the need to belong and the joy of winning can help reconcile the "paradox of alliance formation".