Hail Mary Pass: Contests with Stochastic Progress

Chang Liu

Papers from arXiv.org

Abstract: This paper studies the equilibrium behavior in contests with stochastic progress. Participants have access to a safe action that makes progress deterministically, but they can also take risky moves that stochastically influence their progress towards the goal and thus their relative position. In the unique well-behaved Markov perfect equilibrium of this dynamic contest, the follower drops out if the leader establishes a substantial lead, but resorts to "Hail Marys" beforehand: no matter how low the return of the risky move is, the follower undertakes in an attempt to catch up. Moreover, if the risky move has a medium return (between high and low), the leader will also adopt it when the follower is close to dropping out - an interesting preemptive motive. We also examine the impact of such equilibrium behavior on the optimal prize allocation.

Date: 2023-05
New Economics Papers: this item is included in nep-mic
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