Experimental Economics Seminar - Roman Sheremeta (Case Western Reserve University)

Room 315, Level 3, FBE Building, 111 Barry street, Carlton

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Siqi Pan; Maria Recalde

siqi.pan@unimelb.edu.au; maria.recalde@unimelb.edu.au

Title: Impulsive Behavior in Competition: Testing Theories of Overbidding in Rent-Seeking Contests

Abstract: Contests are commonly used in the workplace to motivate workers, determine promotion, and assign bonuses. Although contests can be very effective at eliciting high effort, they can also lead to inefficient effort expenditure (overbidding). Researchers have proposed various theories to explain overbidding in contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Using an eight-part experiment, we test and find significant support for the existing theories. Also, we discover new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.