Overbidding and Heterogeneous Behavior in Contest Experiments

Roman Sheremeta

Working Papers from Chapman University, Economic Science Institute

Abstract: We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments- (i) overbidding relative to the standard Nash equilibrium prediction and (ii) heterogeneous behavior of ex-ante symmetric contestants. Based on the sample of contest experiments that we review, the median overbidding rate is 72%. We provide different explanations for the overbidding phenomenon, including bounded rationality, utility of winning, other-regarding preferences, probability distortion, and the shape of the payoff function. We also provide explanations for heterogeneous behavior of contestants based on differences in preferences towards winning, inequality, risk and losses, and demographic differences. Furthermore, we suggest mechanisms that can reduce overbidding and induce more homogeneous behavior. Finally, we discuss directions for future research.

Keywords: experiments; contests; overbidding; heterogeneous behavior (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 D72 D74 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2013
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (224)

Downloads: (external link)
http://www.chapman.edu/research-and-institutions/e ... geneous-behavior.pdf

Related works:
Journal Article: OVERBIDDING AND HETEROGENEOUS BEHAVIOR IN CONTEST EXPERIMENTS (2013)
Working Paper: Overbidding and Heterogeneous Behavior in Contest Experiments (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:13-06

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