June 2nd, 2016

Bettina Rockenbach (University of Cologne)

Abstract:

The robust finding of overbidding in experimental rent-seeking contests (Tullock 1980) fuels a vivid discussion on its causes (Sheremeta 2013). We contribute to this discussion by reporting a series of experiments on rent-seeking contests. We show that contestants hold myopic beliefs and match their bid with the competitor’s believed bid. The resulting linear reaction function substantially differs from the theoretic best-reply function and causes overbidding. A systematic study of contests with symmetric and asymmetric bidding costs allows us to discriminate between the prevalent explanations for overbidding. Our results clearly support the desire to win as the dominant motive for overbidding.