An experimental investigation of overdissipation in the all pay auction

Lugovskyy, Volodymyr; Puzzello, Daniela; Tucker, Steven

doi:10.1016/j.euroecorev.2010.02.006

Cited by 66 publications

(50 citation statements)

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“…Their important finding carries over to symmetric all-pay auctions. Indeed, except for Potters et al (1998), the majority of studies using symmetric all-pay auctions with complete information also find that session averages reflect overbidding (Gneezy and Smorodinsky, 2006;Lugovskyy et al, 2010;Fehr and Schmidt, 2011;Klose and Sheremeta, 2012;Ernst and Thöni, 2013;Ong and Chen, 2013). While Potters et al find evidence of equilibrium play in their two-player all-pay auction experiment, their design imposed an exogenous cap on bids (15% above the prize value), which may have biased behavior toward lower, equilibrium bids.…”

Section: All-pay Auctionsmentioning

confidence: 85%

“…A utility function based on these assumptions gives rise to a bimodal bidding behavior in the equilibrium of an all-pay auction. Lugovskyy et al (2010) further explore observed deviations from Nash equilibrium in all-pay auctions. In long sessions, lasting 60 periods, with fixed matching of four-player groups, they show that learning seems to bring bids closer to the Nash equilibrium prediction in the aggregate.…”

Section: All-pay Auctionsmentioning

confidence: 99%

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A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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Many economic, political and social environments can be described as contests in which agents exert costly efforts while competing over the distribution of a scarce resource. These environments have been studied using Tullock contests, all-pay auctions and rank-order tournaments. This survey provides a comprehensive review of experimental research on these three canonical contests. First, we review studies investigating the basic structure of contests, including the number of players and prizes, spillovers and externalities, heterogeneity, risk and incomplete information. Second, we discuss dynamic contests and multi-battle contests. Then we review studies examining sabotage, feedback, bias, collusion, alliances, group contests and gender, as well as field experiments. Finally, we discuss applications of contests and suggest directions for future research. IntroductionMany economic, political and social environments can be described as contests in which competing agents have the opportunity to expend scarce resources -such as effort, money, time, or troops -in order to affect the probabilities of winning prizes. Examples range from the competition for mates, college admission, patents, or promotions within firms, to the process of litigation or lobbying politicians, to elections, sports competitions, and violent global conflicts (Tullock, 1967;Krueger, 1974). As is obvious from this list, these environments have attracted considerable attention in applications in a wide range of fields, both in-and out-side of economics. They have also been studied extensively by economic theorists in what has become known as the field of contest theory (Konrad, 2009). Although this field continues to attract many young theorists, it has its roots in three models developed in the mid-seventies to early eighties: the Tullock (1980) model of rent-seeking, the Lazear and Rosen (1981) rank-order tournament model, and the all-pay auction (Hirshleifer and Riley, 1978;Nalebuff and Stiglitz, 1983;Dasgupta, 1986;Hillman and Riley, 1989). Despite the fact that the three models historically developed somewhat independently, they represent special cases of a general contest model that can be formulated in a unified framework.Despite an extensive and established theoretical literature, much less effort has been devoted to empirically investigate individual behavior in different contests and compare such behavior with theoretical predictions. The main reason is that it is not trivial to measure individual effort in the field since the researcher can only observe the performance of contestants, which is a function of effort, ability and luck (Ericsson and Charness, 1994). The majority of empirical studies use either firm level data (Prendergast, 1999) or sports data (Szymanski, 2003). Because it is typically difficult to measure the actual effort expended by players in the field, almost all of these studies focus solely on investigating whether the pattern of outcomes is consistent with the theoretical predictions.Controlled experimen...

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Section: All-pay Auctionsmentioning

confidence: 85%

Section: All-pay Auctionsmentioning

confidence: 99%

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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“…provides further support for the view that in the type of cutthroat competition represented by the all-pay auction, the high degree of overdissipation that occurs in experiments with four or more players (see Davis and Reilly, 1998, Gneezy and Smorodinsky, 2006, and Lugovskyy et al, 2010 does not arise with two players.…”

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confidence: 64%

“…In the other two treatments, average revenue falls from roughly 1.75 and 2.15 times the value of the prize in the first ten periods to 1.15 and 1.25 in the last ten periods. See Lugovskyy et al (2010), Figure 2,p. 980.…”

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confidence: 99%

Behavior in All-Pay Auctions with Ties

2015

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Despite the wide occurrence of ties in a variety of contest settings, the strategic interaction that arises when ties are treated as viable outcomes has received little attention. Building on recent theoretical work, we experimentally examine an extension of the canonical two-player all-pay auction in which a tie occurs unless one player's bid exceeds the other's by some critical threshold. In the event of a tie, each player receives an identical fraction of the prize. For the case where players receive one-half of the prize when they tie, we find that players' expenditures are non-monotonic in the threshold required for victory. Moreover, for certain positive thresholds, expenditures may even be higher than under the standard all-pay auction. We also find that decreasing the fraction of the prize players receive for tying may either increase or decrease total expenditures. In accordance with theory, the effect depends upon the threshold.

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“…While this literature puts much emphasis on tournaments, Tullock contests and incomplete information allpay auctions, only a few papers focus on complete information all-pay auctions (e.g., Davis and Reilly 1998, Gneezy and Smorodinsky 2006, Lugovskyy, Puzello, and Tucker 2010or Ernst and Thöni 2013. 3 In all-pay auctions with complete information all equilibria are in mixed strategies, and with the exception of Davis and Reilly (1998) all these papers investigate symmetric all-pay auctions.…”

Section: Introductionmentioning

confidence: 99%

Exclusion in the All-Pay Auction: An Experimental Investigation

Fehr

Schmid²

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Dietmar Fehr WZB Julia Schmid WZB Copyright remains with the author(s).Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole. Contest or auction designers who want to maximize the overall revenue are frequently concerned with a trade-off between contest homogeneity and inclusion of bidders with high valuations. In our experimental study, we find that it is not profitable to exclude the most able bidder in favor of greater homogeneity among the remaining bidders, even if the theoretical exclusion principle predicts otherwise. This is because the strongest bidders considerably overexert. A possible explanation is that these bidders are afraid they will regret a low but risky bid if they lose and thus prefer a strategy which gives them a lower but secure pay-off. Wissenschaftszentrum Berlin für Sozialforschung gGmbHReichpietschufer 50 10785 Berlin Germany

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An experimental investigation of overdissipation in the all pay auction

Cited by 66 publications

References 37 publications

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

Behavior in All-Pay Auctions with Ties

Exclusion in the All-Pay Auction: An Experimental Investigation

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