Overbidding and Heterogeneous Behavior in Contest Experiments: A Comment on the Endowment Effect

Abstract

We revisit the meta‐analysis of Sheremeta on overbidding in contest experiments and focus on the effect of endowment on overbidding. Sheremeta assumes, and finds evidence of, an increasing linear relationship between endowment and overbidding, Quantal Response Equilibrium (QRE) predicts an increasing concave relationship, while Baik and colleagues find an inverted U‐shaped relationship in their analysis of a single experiment. We use the same data as in Sheremeta, but employ a different econometric model which leads to support for both QRE and the inverted U‐shaped relationship. Following Baik and colleagues, we posit that the inverted‐U relationship may be interpreted in terms of a wealth effect.

Keywords: Contests, Endowment, Experiments, Meta‐analysis, Overbidding