Impulsive Behavior in Competition: Testing Theories of Overbidding in Rent-Seeking Contests
55 Pages Posted: 20 Oct 2015 Last revised: 27 Apr 2018
Date Written: April 18, 2018
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: Suggested Citation