Costly Waiting in Dynamic Contests: Theory and Experiment

Daniel Houser and Jian Song ()
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Jian Song: Interdisciplinary Center for Economic Science and Department of Economics, George Mason University

No 1082, Working Papers from George Mason University, Interdisciplinary Center for Economic Science

Abstract: We extend the war of attrition by studying a three-period dynamic contest game. In our game, players can fight against their opponents at certain period of the contest and can flee at any time. Waiting is costly. We focus on the role of waiting costs and show that the value of waiting costs is a key factor in determining the type of equilibrium in such dynamic contests. Specifically, as waiting costs increase, contests end earlier, battles are less likely to occur, and the weaker player in a pair is more likely to flee. A lab experiment verifies most key features of our model. However, unlike theoretical predictions, we find that as waiting costs increase, the duration of contests and the frequency of battles fail to drop as significantly as theory predicted. Moreover, we find that in each treatment, individual players exit the contest significantly earlier than predicted.

Keywords: Dynamic contest; Waiting cost; Frequency of battles; Lab experiment (search for similar items in EconPapers)
JEL-codes: C90 D82 D90 (search for similar items in EconPapers)
Pages: 44
Date: 2021-08
New Economics Papers: this item is included in nep-exp, nep-gth and nep-isf
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