Overbidding and Heterogeneous Behavior in Contest Experiments

24 Pages Posted: 4 Jun 2013

Multiple version iconThere are 2 versions of this paper

Date Written: July 2013

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 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.

Keywords: Experiments, Contests, Overbidding, Heterogeneous behavior

Suggested Citation

Sheremeta, Roman M., Overbidding and Heterogeneous Behavior in Contest Experiments (July 2013). Journal of Economic Surveys, Vol. 27, Issue 3, pp. 491-514, 2013. Available at SSRN: https://ssrn.com/abstract=2273997 or http://dx.doi.org/10.1111/joes.12022

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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