How Selfish Contestants Use Endogenous Emotions to Increase Subjective Utilities

Abstract

We study a two-player contest in which each egoistic player can choose to release his emotion information to the rival. Each player selects his emotion-parameter value to maximize his material payoffs and his effort level to maximize his subjective utility. There are different equilibria depending on the difference between the abilities of the players. The favorite reveals his envious emotion and the underdog his altruistic emotion in the equilibrium if the favorite’s ability is moderately higher than that of the underdog. Our results suggest that the classic result of the favorite-as-follower does not occur in the equilibrium of the full game.

KEYWORDS:

• Contest
• effort level
• emotion information
• material payoff
• favorite and underdog
• subjective utility

JEL CLASSIFICATIONS:

• C79
• D72

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 According to Dixit (1987), the favorite has a greater than 50% chance of winning at the equilibrium, since his opponent is the underdog. Dixit (1987) with standard, selfish emotion shows that if the favorite (underdog) has the opportunity to move first, then he will over-commit (under-commit) effort.

2 We use the analytical method of Baik and Lee (2012). Baik and Lee’s (2012) study on collective rent seeking by two groups where each group has the option of releasing its sharing-rule information to the rival group.

3 The material payoffs would also be the net expected payoffs of a player who is narrowly selfish (Konrad, 2004).

4 Rabin (1993) first distinguished between (subjective) utility and material payoffs. Konrad (2004, p. 480) explained the difference between utility and material payoff in detail: ‘The distinction between utility and material payoff is inspired by sociobiology. There, material payoff determines the reproductive fitness of an individual and may differ from the individual’s subjective feelings of well-being.’

5 In Bulow, Geanakoplos, and Klemperer (1985), when players’ interactions are strategic complements, a player's optimal response to more aggressive action by his rival is to be even more aggressive since an aggressive action by the rival raises his marginal subjective utility. In the presence of strategic substitutes, a player's optimal response to more aggressive action by his rival is to be less aggressive since an even more aggressive action by the rival lowers his marginal subjective utility.

6 Like Bester and Güth (1998) and Leininger (2009), we consider extreme altruism (γ_i = 1) and envy (γ_i = −1). Allowing for extreme altruism and envy, we show that there is a boundary solution of the subgame in which each player observes his opponent’s emotion.

7 By saying that the player i releases his emotion information to player j, we mean that player i informs player j of true emotion γ_i and acts.

8 Each player chooses his two sequential actions – an emotion-parameter value and then an effort level – without observing those chosen by the rival.

9 We have rounded off all fractions to two decimal places.

Additional information

Notes on contributors

Sung-Hoon Park

Sung-Hoon Park is Professor in the Department of Economics at Chosun University. His research covers a range of topics such as citizen suits, rent-seeking behavior, and natural selection. Park is a member of Social Security Committee of Korea. He was a president of the Korean Industrial Economic Association.

Jason Shogren

Jason Shogren is Stroock Professor of Natural Resource Conservation and Management in the Department of Economics at the University of Wyoming, his alma mater. He studies the behavioral underpinning of economic policy. Shogren is a foreign member of the Royal Swedish Academy of Sciences, and served as professor to King Carl XVI Gustaf of Sweden. He worked with the intergovernmental Panel on Climate Change and for the Council of Economic Advisers in the White House.