Contests as Selection Mechanisms: The Impact of Risk Aversion
Christoph March and
No 6587, CESifo Working Paper Series from CESifo Group Munich
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)
New Economics Papers: this item is included in nep-cbe, nep-des, nep-exp, nep-hrm, nep-mic and nep-upt
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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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