Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field

57 Pages Posted: 26 Dec 2015

See all articles by Mario Lackner

Mario Lackner

Johannes Kepler University Linz

Rudi Stracke

Ludwig Maximilian University of Munich (LMU)

Uwe Sunde

Ludwig Maximilian University of Munich (LMU)

Rudolf Winter-Ebmer

Johannes Kepler University Linz - Department of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Abstract

This paper investigates empirically whether decision makers are forward looking in dynamic strategic interactions. In particular, we test whether decision makers in multi-stage tournaments take heterogeneity induced changes of continuation values and the ability of their immediate opponent into account when choosing effort. Using data from professional and semi-professional basketball tournaments, we find that effort is negatively affected by the ability of the current opponent, consistent with the theoretical prediction and previous evidence. More importantly, the results indicate that the expected relative strength in future interactions does affect behavior in earlier stages, which provides support for the 'standard' view that decision makers are forward looking in dynamic strategic interactions.

Keywords: promotion tournament, multi-stage contest, elimination, heterogeneity, forward-looking behavior

JEL Classification: D84, D90, M51, J33

Suggested Citation

Lackner, Mario and Stracke, Rudi and Sunde, Uwe and Winter-Ebmer, Rudolf, Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field. IZA Discussion Paper No. 9564, Available at SSRN: https://ssrn.com/abstract=2708377 or http://dx.doi.org/10.2139/ssrn.2708377

Mario Lackner (Contact Author)

Johannes Kepler University Linz ( email )

Altenbergerstr. 69
A-4040 Linz, Uper Austria 4040
Austria

Rudi Stracke

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Uwe Sunde

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Rudolf Winter-Ebmer

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8236 (Phone)
+43 732 2468 8238 (Fax)

HOME PAGE: http://www.econ.jku.at/winter

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

HOME PAGE: http://www.ihs.ac.at

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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