Contest Efforts in Light of Behavioural Considerations

This study shows that distortion of probabilities is a possible reason for rent under-dissipation in contests with relatively small number of participants. Such distortion may also result, however, in over-dissipation of the contested rent. Focusing on contests with homogeneous contestants and the commonly studied contest success function, our main results clarify under what circumstances ("i") rents are more under-dissipated relative to the standard situation where probabilities are not distorted ("ii") rents are under-dissipated, yet less intensely relative to the standard situation where probabilities are not distorted ("iii") rents are over-dissipated and ("iv") the contest does not possess a symmetric interior equilibrium in pure strategies. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.