Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230450
Authors: 
Long, Iain W.
Year of Publication: 
2019
Series/Report no.: 
Cardiff Economics Working Papers No. E2019/17
Abstract: 
Why do contests exist in settings where negotiation provides a costless alternative? I assess a new explanation: parties may be overconfident about their ability or optimistic about their chances of winning. For both parties in a contest, this hubris: (i) reduces the incentive to exit the contest; (ii) reduces effort; and(iii) increases expected payoffs. Whilst hubris leads to the contest being preferred to costless negotiation, the welfare loss is nonmonotonic in either behavioural bias.
Subjects: 
Contests
Optimism bias
Overconfidence bias
Negotiation
JEL: 
C71
D74
D91
Document Type: 
Working Paper

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