Costly Waiting in Dynamic Contests: Theory and Experiment
46 Pages Posted: 9 Sep 2022 Last revised: 21 Nov 2022
Date Written: January 31, 2022
Abstract
We extend the war of attrition by studying a three-period dynamic contest game. In our game, players can fight against their opponents at certain period of the contest and can flee at any time. Waiting is costly. We focus on the role of waiting costs and show that the value of waiting costs is a key factor in determining the type of equilibrium in such dynamic contests. Specifically, as waiting costs increase, contests end earlier, battles are less likely to occur, and the weaker player in a pair is more likely to flee. A lab experiment verifies most key features of our model. However, unlike theoretical predictions, we find that as waiting costs increase, the duration of contests and the frequency of battles fail to drop as significantly as theory predicted. Moreover, we find that in each treatment, individual players exit the contest significantly earlier than predicted.
Keywords: dynamic contest, waiting cost, frequency of battles, lab experiment
JEL Classification: D82, D90, C90
Suggested Citation: Suggested Citation