Time Discounting in Strategic Contests

Published in: Journal of Economics & Management Strategy, v. 24, no. 1, Spring 2015, p. 151-164

Posted on RAND.org on March 17, 2016

by Cary Deck, Salar Jahedi

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In many contests, such as political campaigns or R&D expenditures, there is at least some trade-off between immediate money outlay and potential future benefits. This timing aspect has mostly been ignored by the contest literature. If contestants exhibit a strong present bias, such as that shown by past individual choice experiments, then benefits that are deferred to the future will lead to a significant drop in investment. This paper uses controlled laboratory experiments to explore how the timing of prize payment impacts behavior in a contest with a unique Nash equilibrium strategy. We find no evidence that people significantly discount future prizes in our contests, despite the fact that we do replicate present bias in a separate individual choice experiment.

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