Contests as selection mechanisms: The impact of risk aversion
Christoph March and
Journal of Economic Behavior & Organization, 2018, vol. 150, issue C, 114-131
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:150:y:2018:i:c:p:114-131
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