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Emmanuel Dechenaux () and Shakun D. Mago ()
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Emmanuel Dechenaux: Kent State University
Shakun D. Mago: University of Richmond

Experimental Economics, 2023, vol. 26, issue 4, No 7, 915-954

Abstract: Abstract As informational leakages become a common occurrence in economic and business settings, the impact of observability on behavior in adversarial situations assumes increased importance. Consider a two-player contest where there is a probabilistic information leak about one player’s action and the recipient of the information has the ability to revise his contest expenditure in response to the leaked rival choice. How does the ability to revise and resubmit affect each contestant’s behavior? We design a laboratory experiment to study this question for two well-known contest games: the lottery contest and the all-pay auction. Equilibrium predicts that compared to simultaneous moves, the strategic asymmetry arising from the ability to revise has no effect on expected expenditure in the lottery contest. In contrast, in the all-pay auction expected expenditure is decreasing in the probability of informational leakage. Experimental data support these predictions despite overexpenditure relative to equilibrium. Furthermore, the potential observability of the rival’s action confers an advantage on the informed player not only in the all-pay auction, as theory predicts, but also in the lottery contest if the probability of leakage is high.

Keywords: Contest; Sequential; Informational leakage; Commitment; Flexibility; C72; C91; D72 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10683-023-09803-z

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