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Discussion Paper Details

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

Author(s): Mario Lackner, Rudi Stracke, Uwe Sunde and Rudolf Winter-Ebmer

Publication Date: December 2015

Keyword(s): forward-looking behavior, heterogeneity, multi-stage contest and promotion tournament

Programme Area(s): Labour Economics

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.

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Bibliographic Reference

Lackner, M, Stracke, R, Sunde, U and Winter-Ebmer, R. 2015. 'Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field'. London, Centre for Economic Policy Research. https://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10977