Difference between revisions of "Tournament theory"
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Revision as of 14:58, May 9, 2007
In economics, the concept of tournament theory explains that large differences in power or wages are often based on very small, relative differences in performance of the participants.
This concept goes against the more traditional reasoning in economic theory, which puts great emphasis on marginal productivity when it comes to determining wage levels.
The most obvious examples of this can be found in high-profile "Winner takes all" situations like the competition for the position of CEO of a company. However, the mechanism can be found at various levels in a company. For example, the members of a team might know that one of them is going to be promoted in a month.
In such tournaments, the important thing is relative performance, not absolute performance. Putting it in a less formal way, a worker does not have to be perfect, he just has to be better than everybody else, no matter how small the difference is in the end.
This emphasis on relative performance differences leads to certain problems that can be observed in real life.
External links
Tournament Theory by Robert Schenk