Endogenous interdependent preferences in a dynamical contest model

37 Pages Posted: 18 Mar 2022

See all articles by Fausto Cavalli

Fausto Cavalli

Department of Statistics and Quantitative Methods University of Milano-Bicocca

Mario Gilli

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Ahmad Kabir Naimzada

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Date Written: March 17, 2022

Abstract

Outcomes observed in laboratory experiments on contests are often not consistent with the results expected by theoretical models, with phenomena that frequently occur like overbidding or persisting oscillations in strategic choices. Several explanations have been suggested to understand such phenomena, dealing primarily with equilibrium analysis. We propose a dynamical model based on the coevolution of strategic choices and agent preferences. Each agent can have non-self-interested preferences, which influence strategic choices and in turn evolve according to them. We show that multiple coexisting steady states characterized by non-self-interested preferences can exist, and they lose stability as the price increases, leading to endogenous oscillating dynamics. Finally, with an emphasis on two specific kinds of agents, we explain how overbidding can emerge. The numerical results show a good qualitative agreement with the experimental data.

Keywords: Contest models, Endogenous interdependent preferences, Coevolution of strategies and preferences, Multistability, Non convergent dynamics

Suggested Citation

Cavalli, Fausto and Gilli, Mario and Naimzada, Ahmad Kabir and Naimzada, Ahmad Kabir, Endogenous interdependent preferences in a dynamical contest model (March 17, 2022). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 492, Available at SSRN: https://ssrn.com/abstract=4060143

Fausto Cavalli (Contact Author)

Department of Statistics and Quantitative Methods University of Milano-Bicocca ( email )

Piazza dell’Ateneo Nuovo 1, 20126 Milano
Milano, 20126
Italy

Mario Gilli

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Ahmad Kabir Naimzada

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

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