It is psychologically unfair. My son has been in six such situations. When he has finished third and been able to challenge he has won every time (3) and when he has finished 2nd he has finished third twice and second once. It is just too much to ask at a state tournament. The matches are anticlimatic. Finals should be such, FINALS the FINAL matches of the bracket. Smokey, in Wisoonsin they use that to determine who gets to go to state since only the top two qualify from sectionals so maybe you can get some data there. If it is 70% of the time the third place kid beats the 2nd place kid it is obviously a huge disadvantage to the 2nd place finisher.