Impulsive Behavior in Competition: Testing Theories of Overbidding in Rent-Seeking Contests

55 Pages Posted: 20 Oct 2015 Last revised: 27 Apr 2018

Roman M. Sheremeta

Case Western Reserve University

Date Written: April 18, 2018

Abstract

Contests are commonly used in the workplace to motivate workers, determine promotion, and assign bonuses. Although contests can be very effective at eliciting high effort, they can also lead to inefficient effort expenditure (overbidding). Researchers have proposed various theories to explain overbidding in contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Using an eight-part experiment, we test and find significant support for the existing theories. Also, we discover some new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.

Keywords: rent-seeking, contest, overbidding, impulsive behavior, experiments

JEL Classification: C72, C91, D01, D72

Suggested Citation

Sheremeta, Roman M., Impulsive Behavior in Competition: Testing Theories of Overbidding in Rent-Seeking Contests (April 18, 2018). Available at SSRN: https://ssrn.com/abstract=2676419 or http://dx.doi.org/10.2139/ssrn.2676419

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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