Gambling in contests

Christian Seel and Philipp Strack ()

Journal of Economic Theory, 2013, vol. 148, issue 5, 2033-2048

Abstract: This paper presents a strategic model of risk-taking behavior in contests. Formally, we analyze an n-player winner-take-all contest in which each player decides when to stop a privately observed Brownian motion with drift. A player whose process reaches zero has to stop. The player with the highest stopping point wins. Unlike the explicit cost for a higher stopping time in a war of attrition, here, higher stopping times are riskier, because players can go bankrupt. We derive a closed-form solution of a Nash equilibrium outcome. In equilibrium, highest expected losses occur at an intermediate negative value of the drift.

Keywords: Discontinuous games; Contests; Relative performance pay; Risk-taking behavior (search for similar items in EconPapers)
JEL-codes: C72 C73 D81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Gambling in Contests (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:5:p:2033-2048

DOI: 10.1016/j.jet.2013.07.005

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