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Exclusion in the all-pay auction: An experimental investigation

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  • Fehr, Dietmar
  • Schmid, Julia

Abstract

Contest or auction designers who want to maximize the overall revenue are frequently concerned with a trade-off between contest homogeneity and inclusion of bidders with high valuations. In our experimental study, we find that it is not profitable to exclude the most able bidder in favor of greater homogeneity among the remaining bidders, even if the theoretical exclusion principle predicts otherwise. This is because the strongest bidders considerably overexert. A possible explanation is that these bidders are afraid they will regret a low but risky bid if they lose and thus prefer a strategy which gives them a lower but secure pay-off.

Suggested Citation

  • 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).
  • Handle: RePEc:zbw:wzbmbh:spii2014206
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    Keywords

    experiments; contests; all-pay auction; heterogeneity; regret aversion;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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