Gambling in Contests

Arbeitspapier

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. Contrary to 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 the unique Nash equilibrium outcome of the game. In equilibrium, the trade-off between risk and reward causes a non-monotonicity: highest expected losses occur if the process decreases only slightly in expectation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 375

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: Discontinuous games ; Contests ; Relative performance pay ; Risktaking behavior ; Entscheidung bei Risiko ; Glücksspiel ; Nichtkooperatives Spiel ; Test

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Seel, Christian ; Strack, Philipp
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2012

Further information

• DOI: doi:10.5282/ubm/epub.13179
• Handle: http://hdl.handle.net/10419/93787
• URN: urn:nbn:de:bvb:19-epub-13179-7
• Last update: 10.03.2025, 11:43 AM CET