OVERBIDDING AND HETEROGENEOUS BEHAVIOR IN CONTEST EXPERIMENTS

Roman M. Sheremeta

211 citations0/0 files storedJournal of Economic Surveys

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Experimental Behavioral Economics Studies Decision-Making and Behavioral Economics Auction Theory and Applications

Abstract

Abstract We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments: (i)overbiddingrelative to the standard Nash equilibrium prediction and (ii)heterogeneous behaviorofex antesymmetric 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 toward 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.

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References

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