Contests as Selection Mechanisms: The Impact of Risk Aversion

Christoph March and Marco Sahm

No 6587, CESifo Working Paper Series from CESifo

Abstract: We investigate how individual risk preferences affect the likelihood of selecting the more able contestant within a two-player Tullock contest. Our theoretical model yields two main predictions: First, an increase in the risk aversion of a player worsens her odds unless she already has a sufficiently large advantage. Second, if the prize money is sufficiently large, a less able but less risk averse contestant can achieve an equal or even higher probability of winning than a more able but more risk averse opponent. In a laboratory experiment we confirm both, the non-monotonic impact and the compensating effect of risk aversion on winning probabilities. Our results suggest a novel explanation for the gender gap and the optimality of limited monetary incentives in selection contests.

Keywords: selection contest; risk aversion; competitive balance; gender gap (search for similar items in EconPapers)
JEL-codes: C72 D72 J31 K41 M51 M52 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cbe, nep-des, nep-exp, nep-hrm, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Contests as selection mechanisms: The impact of risk aversion (2018)
Working Paper: Contests as selection mechanisms: The impact of risk aversion (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6587

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