An Agent-Based Modeling Approach for Evaluating Dynamic Risk Behavior in Competitive Bidding

The risk attitude of contractors impacts their bid values in competitive bidding. However, the existing literature assumes a static risk behavior for the contractors, and that competitive bidding does not alter the risk attitude of contractors. To this effect, this paper aims to represent the influence of external (market competition; project information, etc.) and internal (financial performance; need for work, etc.) factors on the adaptive risk attitude of the contractors, their submitted bid values, and their survival in the market. The paper's objective is to develop an agent-based model (ABM) that represents the competitive bidding environment and that relies on data gathered through the literature on the importance and impact of multiple factors that drive the risk behavior of contractors within the bidding context. The presented ABM is an important tool to help contractors understand and evaluate the importance of adapting their risk behavior to their internal and external bidding conditions in order to ensure their survival in the market.