Contests as Selection Mechanisms: The Impact of Risk Aversion

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6587

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Wage Level and Structure; Wage Differentials ; Litigation Process ; Personnel Economics: Firm Employment Decisions; Promotions ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: selection contest ; risk aversion ; competitive balance ; gender gap

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): March, Christoph ; Sahm, Marco
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/171051
• Last update: 10.03.2025, 11:44 AM CET