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Overconfidence in Economic Contests

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  • Munetomo Ando

Abstract

This paper studies an economic contest with two participants, who have overconfidence in their own relative abilities. We examine two different sources of overconfidence, overestimation of one's own ability and underestimation of the rival's ability, and compare the behavioral consequences of each situation with the correctly estimated case. The main result is that the former always induces the participants' aggressive behavior, while the latter does not.

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File URL: http://repec.org/esFEAM04/up.23374.1080724530.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 708.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:708

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Keywords: Overconfidence; economic contest; relative ability; all-pay auction;

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References

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  1. Ando, Munetomo, 2004. "Division of a contest with identical prizes," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 282-297, June.
  2. Robert Dorsey & Laura Razzolini, 2003. "Explaining Overbidding in First Price Auctions Using Controlled Lotteries," Experimental Economics, Springer, vol. 6(2), pages 123-140, October.
  3. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
  4. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  5. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  6. Noussair, Charles & Silver, Jonathon, 2006. "Behavior in all-pay auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 55(1), pages 189-206, April.
  7. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
  8. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  9. Nirvikar Singh & Donald Wittman, 2001. "Contests where there is variation in the marginal productivity of effort," Economic Theory, Springer, vol. 18(3), pages 711-744.
  10. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
  11. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
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Cited by:
  1. Santos-Pinto, Luís, 2003. "Positive self-image in tournaments," MPRA Paper 3140, University Library of Munich, Germany, revised 27 Feb 2007.

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