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OVERBIDDING AND HETEROGENEOUS BEHAVIOR IN CONTEST EXPERIMENTS
Author(s) -
Sheremeta Roman M.
Publication year - 2013
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/joes.12022
Subject(s) - contest , economics , bounded rationality , ex ante , distortion (music) , homogeneous , stochastic game , microeconomics , rationality , function (biology) , mathematical economics , econometrics , computer science , mathematics , macroeconomics , amplifier , computer network , bandwidth (computing) , combinatorics , evolutionary biology , biology , political science , law
We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments: (i) overbidding relative to the standard Nash equilibrium prediction and (ii) heterogeneous behavior of ex ante symmetric contestants. Based on the sample of contest experiments that we review, the median overbidding rate is 72%. We provide different explanations for the overbidding phenomenon, including bounded rationality, utility of winning, other‐regarding preferences, probability distortion, and the shape of the payoff function. We also provide explanations for heterogeneous behavior of contestants based on differences in preferences toward winning, inequality, risk and losses, and demographic differences. Furthermore, we suggest mechanisms that can reduce overbidding and induce more homogeneous behavior. Finally, we discuss directions for future research.