Level-k Models Rationalize Overspending in Contests

Malin Arve and Marco Serena

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: The experimental evidence on contests often reports overspending of subjects as opposed to the Nash equilibrium. Explaining such phenomenon is a long-standing research question. We complement the alternative explanations proposed by the literature by providing a theoretical rationale for overspending which is based on the level-k model. This also bridges an open gap between the contest and auction literatures.

Keywords: Contest; Level-k reasoning (search for similar items in EconPapers)
JEL-codes: C72 D72 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016-11
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