Costly Waiting in Dynamic Contests: Theory and Experiment

46 Pages Posted: 9 Sep 2022 Last revised: 21 Nov 2022

See all articles by Jian Song

Jian Song

Chapman University; George Mason University - Interdisciplinary Center for Economic Science (ICES)

Daniel Houser

Interdisciplinary Center for Economic Science

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

Song, Jian and Houser, Daniel, Costly Waiting in Dynamic Contests: Theory and Experiment (January 31, 2022). GMU Working Paper in Economics No. 22-38, Available at SSRN: https://ssrn.com/abstract=4199719 or http://dx.doi.org/10.2139/ssrn.4199719

Jian Song (Contact Author)

Chapman University ( email )

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

Vernon Smith Hall, 3434 Washington Blvd. North, 5t
Arlington, VA 22201
United States

Daniel Houser

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

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