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Choosing Fair Lotteries to Defeat the Competition

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Author Info
Wagman, Liad
Conitzer, Vincent

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Abstract

We study the following game: each agent i chooses a lottery over nonnegative numbers whose expectation is equal to his budget b_i. The agent with the highest realized outcome wins and agents only care about winning). This game is motivated by various real-world settings where agents each choose a gamble and the primary goal is to come out ahead. Such settings include patent races, stock market competitions, and R&D tournaments. We show that there is a unique symmetric equilibrium when budgets are equal. We proceed to study and solve extensions, including settings where agents must obtain a minimum outcome to win; where agents choose their budgets (at a cost); and where budgets are private information.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10375.

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Date of creation: 14 Aug 2008
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Handle: RePEc:pra:mprapa:10375

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Related research
Keywords: Strategic gambling; Nash equilibrium; fair lotteries;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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  15. Kyle Bagwell & Robert W. Staiger, 1990. "Risky R&D in Oligopolistic Product Markets," Discussion Papers 872, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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