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An experimental investigation of overdissipation in the all pay auction

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  • Lugovskyy, Volodymyr
  • Puzzello, Daniela
  • Tucker, Steven

Abstract

Pervasive overbidding represents a well-documented feature of all-pay auctions. Aggregate bids exceed Nash predictions in laboratory experiments, and individuals often submit bids that guarantee negative profits. This paper examines three factors that may reduce pervasive overbidding: (a) repetition (experience), (b) reputation (strangers vs. partners), and (c) active participation. Reputation and repetition reduce aggregate overdissipation, but they eliminate it only in conjunction with active participation.

Suggested Citation

  • Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven, 2010. "An experimental investigation of overdissipation in the all pay auction," European Economic Review, Elsevier, vol. 54(8), pages 974-997, November.
  • Handle: RePEc:eee:eecrev:v:54:y:2010:i:8:p:974-997
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    Cited by:

    1. Subhasish Chowdhury & Dan Kovenock & Roman Sheremeta, 2013. "An experimental investigation of Colonel Blotto games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 833-861, April.
    2. Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2014. "“Bucket auctions” for charity," Games and Economic Behavior, Elsevier, vol. 88(C), pages 260-276.
    3. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    4. Curtis R. Price & Roman M. Sheremeta, 2015. "Endowment Origin, Demographic Effects, and Individual Preferences in Contests," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 597-619, September.
    5. repec:eee:jeborg:v:142:y:2017:i:c:p:120-139 is not listed on IDEAS
    6. Shakun D. Mago & Anya C. Savikhin & Roman M. Sheremeta, 2012. "Facing Your Opponents: Social identification and information feedback in contests," Working Papers 12-15, Chapman University, Economic Science Institute.
    7. Fehr, Dietmar & Schmid, Julia, 2014. "Exclusion in the all-pay auction: An experimental investigation," Discussion Papers, Research Unit: Market Behavior SP II 2014-206, Social Science Research Center Berlin (WZB).
    8. Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 491-514, July.
    9. Llorente-Saguer, Aniol & Sheremeta, Roman M. & Szech, Nora, 2016. "Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions," Working Paper Series in Economics 88, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
    10. Deck, Cary & Foster, Joshua & Song, Hongwei, 2015. "Defense against an opportunistic challenger: Theory and experiments," European Journal of Operational Research, Elsevier, vol. 242(2), pages 501-513.
    11. Einav Hart & Judith Avrahami & Yaakov Kareev, 2016. "Enlarging the market yet decreasing the profit: An experimental study of competitive behavior when investment affects the prize," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 11(4), pages 380-390, July.
    12. Gisèle Umbhauer, 2017. "Second price all-pay auctions, how much money do players get or lose?," Working Papers of BETA 2017-16, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    13. Hyndman, Kyle & Ozbay, Erkut Y. & Sujarittanonta, Pacharasut, 2012. "Rent seeking with regretful agents: Theory and experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 866-878.
    14. Shakun D. Mago & Roman M. Sheremeta, 2012. "Multi-Battle Contests: An Experimental Study," Working Papers 12-06, Chapman University, Economic Science Institute.
    15. repec:uea:wcbess:13-11 is not listed on IDEAS
    16. repec:eee:ecolet:v:161:y:2017:i:c:p:71-73 is not listed on IDEAS
    17. Gisèle Umbhauer, 2017. "Equilibria in discrete and continuous second price all-pay auctions, convergence or yoyo phenomena," Working Papers of BETA 2017-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    18. Kai A. Konrad & Florian Morath, 2017. "Escalation in Dynamic Conflict: On Beliefs and Selection," Working Papers tax-mpg-rps-2017-05, Max Planck Institute for Tax Law and Public Finance.
    19. Francesco Fallucchi & Elke Renner, 2016. "Reputational Concerns in Repeated Rent-Seeking Contests," Discussion Papers 2016-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    20. Kyung Hwan Baik & Subhasish M. Chowdhury & Abhijit Ramalingam, 2015. "Group size and matching protocol in contests," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 13-11R, School of Economics, University of East Anglia, Norwich, UK..
    21. Gelder, Alan & Kovenock, Dan & Sheremeta, Roman, 2015. "Behavior in All-Pay Auctions with Ties," MPRA Paper 67517, University Library of Munich, Germany.
    22. Einav Hart & Judith Avrahami & Yaakov Kareev & Peter M. Todd, 2014. "Investing Even in Uneven Contests: Effects of Asymmetry on Investment in Experimental All-Pay Contests," Discussion Paper Series dp660, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    23. Müller, Julia & Schwieren, Christiane & Spitzer, Florian, 2016. "What Drives Destruction? On the Malleability of Anti-Social Behavior," Department of Economics Working Paper Series 5343, WU Vienna University of Economics and Business.
    24. Astrid, Gamba & Luca, Stanca, 2016. "Mis-Judging Merit: The Effects of Adjudication Errors in Contests," Working Papers 345, University of Milano-Bicocca, Department of Economics, revised 14 Jul 2016.
    25. Hironori Otsubo, 2013. "Do campaign spending limits diminish competition? An experiment," Economics Bulletin, AccessEcon, vol. 33(3), pages 2223-2234.

    More about this item

    Keywords

    All-pay auction Experimental economics Collusion Rent-seeking model;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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