Level- k Models and Overspending in Contests

Malin Arve and Marco Serena

Games, 2022, vol. 13, issue 3, 1-12

Abstract: The experimental evidence on contests often reports overspending of contest participants compared to the theoretical Nash equilibrium outcome. We show that a standard level- k model may rationalize overspending in contests. This result complements the existing literature on overspending in contests, and it bridges an open gap between the contest and auction literature. In fact, the literature on auctions often runs parallel to that on contests.Overbidding in auctions has also been documented empirically, and it has been shown that, in private-value auctions, such overbidding can be rationalized by level- k reasoning. We bridge the existing gap between the auction and contest literature by showing that overbidding may also be true in a theoretical contest environment with level- k reasoning.

Keywords: Tullock contests; level- k reasoning; overspending (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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