Showing Off or Laying Low? The Economics of Psych-outs: The Economics of Psych-outs

Philipp Denter*, John Morgan, Dana Sisak

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

5 Citations (Scopus)
33 Downloads (Pure)

Abstract

We analyze the incentives for showing off, which we model as a costly signaling game, and study the consequences of norms against such behavior. Prior to competing in a contest, a newcomer can signal his talent to an incumbent. In equilibrium, costly signaling of ability occurs only when the newcomer is exceptionally talented. In such situations signaling benefits both contestants: the newcomer for obvious reasons; the incumbent by economizing on wasted effort in the contest. Our results rationalize the emergence of norms against showing off in settings where total effort is important. When selection efficiency matters, such norms decrease welfare.

Original languageEnglish
Pages (from-to)529-580
Number of pages52
JournalAmerican Economic Journal. Microeconomics
Volume14
Issue number1
DOIs
Publication statusPublished - Feb 2022

Bibliographical note

JEL Classification:
D82 Asymmetric and Private Information; Mechanism Design
D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

Funding Information:
* Denter: Departamento de Economia, Universidad Carlos III de Madrid (email: [email protected]); Morgan: Haas School of Business, University of California, Berkeley (email: [email protected]); Sisak: Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute (email: [email protected]). Leslie Marx was coeditor for this article. For valuable comments and suggestions we would like to thank Suzanne Bijkerk, Anne Boring, Micael Castanheira, Marco Celentani, Luis CorchÓn, Benoît Crutzen, Josse Delfgaauw, Robert Dur, Christian Ewerhardt, Boris Ginzburg, Leif Helland, Sacha Kapoor, Vladimir Karamychev, Antoine Loeper, Jingfeng Lu, Álvaro Name, Diego Moreno, Christian Riis, Antonio Romero, Johannes Schneider, Cedric Wasser, Jun Xiao, participants of the 2016 SAET congress, the 2016 APET meeting, the 2017 Erasmus Political Economy Workshop, the 2017 workshop on Contests: Theory and Evidence in Norwich, the 2017 workshop in Political Economy in Konstanz, the 2017 Bruneck workshop in Political Economy, the 2018 Bristol Junior Economic Theory Workshop, the 2019 Bern Workshop on Contest Theory, as well as seminar audiences at Erasmus University Rotterdam, University of Regensburg, Universidad Carlos III de Madrid, University of Lüneburg, BI Norwegian Business School, CERGE-EI, University of Mannheim, University of Bern, and University of St. Gallen. Denter and Sisak gratefully acknowledge the financial support of the Swiss National Science Foundation through grants PBSGP1-135426 (Denter) and PBSGP1-130765 (Sisak). Denter gratefully acknowledges the support from the Ministerio Economia y Competitividad (Spain) through grants ECO2014-55953-P, MDM 2014-0431, and PGC2018-098510-B-I00. Finally, we are very grateful for the insightful comments and suggestions of three anonymous referees and an editor. Of course, all errors are our own.

Publisher Copyright: © 2022

Funding Information:
* Denter: Departamento de Economia, Universidad Carlos III de Madrid (email: [email protected]); Morgan: Haas School of Business, University of California, Berkeley (email: [email protected]); Sisak: Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute (email: [email protected]). Leslie Marx was coeditor for this article. For valuable comments and suggestions we would like to thank Suzanne Bijkerk, Anne Boring, Micael Castanheira, Marco Celentani, Luis CorchÓn, Benoît Crutzen, Josse Delfgaauw, Robert Dur, Christian Ewerhardt, Boris Ginzburg, Leif Helland, Sacha Kapoor, Vladimir Karamychev, Antoine Loeper, Jingfeng Lu, Álvaro Name, Diego Moreno, Christian Riis, Antonio Romero, Johannes Schneider, Cedric Wasser, Jun Xiao, participants of the 2016 SAET congress, the 2016 APET meeting, the 2017 Erasmus Political Economy Workshop, the 2017 workshop on Contests: Theory and Evidence in Norwich, the 2017 workshop in Political Economy in Konstanz, the 2017 Bruneck workshop in Political Economy, the 2018 Bristol Junior Economic Theory Workshop, the 2019 Bern Workshop on Contest Theory, as well as seminar audiences at Erasmus University Rotterdam, University of Regensburg, Universidad Carlos III de Madrid, University of Lüneburg, BI Norwegian Business School, CERGE-EI, University of Mannheim, University of Bern, and University of St. Gallen. Denter and Sisak gratefully acknowledge the financial support of the Swiss National Science Foundation through grants PBSGP1-135426 (Denter) and PBSGP1-130765 (Sisak). Denter gratefully acknowledges the support from the Ministerio Economia y Competitividad (Spain) through grants ECO2014-55953-P, MDM 2014-0431, and PGC2018-098510-B-I00. Finally, we are very grateful for the insightful comments and suggestions of three anonymous referees and an editor. Of course, all errors are our own.

Publisher Copyright:
© 2022

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