Overconfidence and timing of entry

DOI10.3390/G11040044MaRDI QIDQ2223647zbMATH OpenOpenAlexFDO

Authors Tiago Pires, Luís Santos-Pinto

Publication date 1 February 2021

Published in Games (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.3390/g11040044

zbMATH Keywords

endogenous timingentryoverconfidence

Mathematics Subject Classification ID

2-person games (91A05) Games of timing (91A55) Special types of economic markets (including Cournot, Bertrand) (91B54)

Review text

Summary: We analyze the impact of overconfidence on the timing of entry in markets, profits, and welfare using an extension of the quantity commitment game. Players have private information about costs, one player is overconfident, and the other one rational. We find that for slight levels of overconfidence and intermediate cost asymmetries, there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of being the Stackelberg leader. Overconfidence lowers the profit of the rational player but can increase that of the overconfident player. Consumer rents increase with overconfidence while producer rents decrease which leads to an ambiguous welfare effect.

Recommendations

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Cites work

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Cited in

(2)

• Optimism and timing of market entry: how beliefs and information distortion create market leadership
• Optimal overconfidence in the presence of information manipulation

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