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Signaling In A Dynamic Contest With Boundedly Rational Players

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  • J. Atsu Amegashie

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    (Department of Economics, University of Guelph)

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    Abstract

    I consider a two-stage (dynamic) elimination contest with uninformed and informed players. Informed players can signal their type to future uninformed opponents through their efforts in the first stage. Uninformed players might make wrong inferences. It is in this sense that they are boundedly rational. Relative to the benchmark case of complete information, I find that there exists an equilibrium in which an informed player exerts a higher effort in the semi-final in the incomplete-information version of the game, if the uninformed player is sufficiently weak. The informed player exerts a smaller effort, if the uninformed player is sufficiently strong. Intuitively, informed players may want to scare future uninformed opponents by exerting higher efforts in earlier rounds. However, trying to scare a very strong player may not be a sensible strategy because he might compete very fiercely. Surprisingly, I find that a higher semi-final effort by the informed player is not necessarily interpreted by the uninformed player as a signal of higher ability.

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    Bibliographic Info

    Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 0510.

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    Length: 24 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:gue:guelph:2005-10

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    Keywords: bounded rationality; dynamic contests; signaling; subjective beliefs.;

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    1. Matthew Rabin, 2002. "Inference By Believers In The Law Of Small Numbers," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 775-816, August.
    2. William Stein & Amnon Rapoport, 2005. "Symmetric two-stage contests with budget constraints," Public Choice, Springer, vol. 124(3), pages 309-328, September.
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    11. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
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    13. Lipman, Barton L, 1991. "How to Decide How to Decide How to. . . : Modeling Limited Rationality," Econometrica, Econometric Society, vol. 59(4), pages 1105-25, July.
    14. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
    15. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
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