OVERBIDDING IN CONTESTS - CAN NUDGING DECREASE EXPENDITURES? EXPERIMENTAL EVIDENCE
OVERBIDDING IN CONTESTS - CAN NUDGING DECREASE EXPENDITURES? EXPERIMENTAL EVIDENCE

Summary/Abstract: This paper examines overbidding in contests and the potential of default options (nudges) to reduce expenditures and enhance cooperative behavior. The study is based on an online laboratory experiment (N = 222), using a 2x2 design with two treatment factors: contest type (winner-take-all [WTA] vs. proportional prize [PP]) and the presence or absence of a nudge. Participants were divided into three-person groups and urge to decide how many tokens to invest in intergroup contests. The WTA contest determined the probability of winning the prize based on the relative expenditures of the groups, while the PP contest distributed rewards proportionally. The nudge, introduced in two of the four scenarios, involved setting a default contribution level, allowing for the investigation of its impact on expenditures and coordination. We found that expenditures exceeded the predicted optimal levels across all treatments but decreased over successive rounds. The PP contest with the nudge resulted in the lowest expenditures and least resource wastage, leading to the highest participant payoffs. Even though the WTA contest with the default option showed the highest expenditures, these findings highlight the effectiveness of nudges under this setting in promoting efficient resource use overall and suggest that behavioral interventions can significantly impact expenditure patterns in competitive environments. The research contributes to the broader debate on economic and social interactions, offering insights into strategies for improving resource management and cooperation in both local and global contexts.

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