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Rent seeking with regretful agents: Theory and experiment

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  • Hyndman, Kyle
  • Ozbay, Erkut Y.
  • Sujarittanonta, Pacharasut

Abstract

We investigate both theoretically and experimentally the role that information disclosure has on behavior in all pay environments in which all agents must exert costly effort, but only the winner is rewarded. Through the lens of all pay auctions, we show that bidders who have regret concerns when they lose an auction may alter their bids. Whether or not information about the winning bid is disclosed, all losing bidders regret not bidding 0. However, when feedback on the winning bid is provided, those bidders who lost at an affordable price may regret not bidding more. We show that the former effect causes bidders to lower their bids, while the latter effect causes bidders to raise their bids. Our experimental results indicate overbidding whether or not the winning bid is disclosed to losing bidders. However, disclosing the winning bid leads to even more aggressive bidding, increases revenues, decreases the frequency of dropouts and also leads to more efficient allocations. Thus our results show that information disclosure is a powerful tool that mechanism designers may wish to exploit to extract more rents in all pay environments.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jeborg:v:84:y:2012:i:3:p:866-878
    DOI: 10.1016/j.jebo.2012.10.007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Diego Aycinena & Rimvydas Baltaduonis & Lucas Rentschler, 2019. "Valuation structure in incomplete information contests: experimental evidence," Public Choice, Springer, vol. 179(3), pages 195-208, June.
    2. Dietmar Fehr & Julia Schmid, 2018. "Exclusion in all‐pay auctions: An experimental investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 326-339, June.
    3. Oliver Kirchkamp & Wladislaw Mill, 2019. "Spite vs. risk: explaining overbidding," CESifo Working Paper Series 7631, CESifo.
    4. Paul Pezanis-Christou & Hang Wu, 2017. "A Naïve Approach to Bidding," School of Economics Working Papers 2017-03, University of Adelaide, School of Economics.
    5. Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 491-514, July.
    6. Paul Pezanis-Christou & Hang Wu, 2018. "A non-game-theoretic approach to bidding in first-price and all-pay auctions," School of Economics Working Papers 2018-12, University of Adelaide, School of Economics.
    7. Adriana Breaban & Charles N. Noussair & Andreea Victoria Popescu, 2018. "Your money or your time? Experimental evidence on overbidding in all-pay auctions," Working Papers 18-20, Chapman University, Economic Science Institute.
    8. Popescu, Andreea Victoria, 2020. "Essays in asset pricing and auctions," Other publications TiSEM 879f7643-7123-4bc8-a5e7-6, Tilburg University, School of Economics and Management.
    9. Breaban, Adriana & Noussair, Charles N. & Popescu, Andreea Victoria, 2020. "Contests with money and time: Experimental evidence on overbidding in all-pay auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 391-405.
    10. 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.

    More about this item

    Keywords

    All-pay auctions; Regret; Experiment; Rent-seeking;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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