Showing Off or Laying Low? The Economics of Psych-outs
- (pp. 529-80)
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.Citation
Denter, Philipp, John Morgan, and Dana Sisak. 2022. "Showing Off or Laying Low? The Economics of Psych-outs." American Economic Journal: Microeconomics, 14 (1): 529-80. DOI: 10.1257/mic.20190234Additional Materials
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
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