Contests with Ambiguity
Paper number: 14/11
Paper date: June 20, 2014
Paper Category: Discussion Paper
David Kelsey and Tigran Melkonyan
The paper examines the effect of ambiguity on contests where multiple parties expend resources to win a prize. We develop a model where contenders perceive ambiguity about their opponents’ strategies and determine how perceptions of ambiguity and attitudes to ambiguity affect equilibrium choice. The paper also investigates how equilibrium under ambiguity is related to behavior where contenders have expected utility preferences. Our model can explain experimental results such as overbidding and overspreading relative to Nash predictions.