IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v148y2013i5p2033-2048.html
   My bibliography  Save this article

Gambling in contests

Author

Listed:
  • Seel, Christian
  • Strack, Philipp

Abstract

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. Unlike 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 a Nash equilibrium outcome. In equilibrium, highest expected losses occur at an intermediate negative value of the drift.

Suggested Citation

  • Seel, Christian & Strack, Philipp, 2013. "Gambling in contests," Journal of Economic Theory, Elsevier, vol. 148(5), pages 2033-2048.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:5:p:2033-2048
    DOI: 10.1016/j.jet.2013.07.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022053113001233
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jet.2013.07.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Lones Smith & Giuseppe Moscarini, 2007. "Optimal Dynamic Contests," 2007 Meeting Papers 249, Society for Economic Dynamics.
    3. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
    4. Axel Anderson & Luís M. B. Cabral, 2007. "Go for broke or play it safe? Dynamic competition with choice of variance," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 593-609, September.
    5. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 291-305.
    6. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, vol. 54(1), pages 63-82, January.
    7. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
    8. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-960, July.
    9. , & ,, 2008. "Caller Number Five and related timing games," Theoretical Economics, Econometric Society, vol. 3(2), June.
    10. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    11. Faruk Gul & Wolfgang Pesendorfer, 2012. "The War of Information," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 707-734.
      • Gul, Faruk & Pesendorfer, Wolfgang, 2010. "The War of Information," Papers 9-13-2010, Princeton University, Research Program in Political Economy.
    12. Pedersen, J. L. & Peskir, G., 2001. "The Azéma-Yor embedding in non-singular diffusions," Stochastic Processes and their Applications, Elsevier, vol. 96(2), pages 305-312, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Han Feng & David Hobson, 2015. "Gambling in contests modelled with diffusions," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(1), pages 21-37, April.
    2. Gwen-Jiro Clochard & Guillaume Hollard & Julia Wirtz, 2022. "More effort or better technologies? On the effect of relative performance feedback," Bristol Economics Discussion Papers 22/767, School of Economics, University of Bristol, UK.
    3. Christian Seel, 2018. "Contests with endogenous deadlines," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 119-133, March.
    4. Marcel Nutz & Yuchong Zhang, 2019. "A Mean Field Competition," Management Science, INFORMS, vol. 44(4), pages 1245-1263, November.
    5. Matthew Embrey & Christian Seel & J. Philipp Reiss, 2020. "Gambling in Risk-Taking Contests: Experimental Evidence," Working Paper Series 1620, Department of Economics, University of Sussex Business School.
    6. Han Feng & David Hobson, 2014. "Gambling in contests with random initial law," Papers 1405.7801, arXiv.org, revised Feb 2016.
    7. Nelson, Arthur B, 2020. "Deterrence in sequential contests: An experimental study," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).
    8. Arthur B. Nelson, 2019. "Deterrence in sequential contests: An experimental study," Working Papers wp2019_11_02, Department of Economics, Florida State University.
    9. Usvitskiy, Alexander, 2022. "Strategic risk-taking in dynamic contests," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 511-534.
    10. Seel, Christian, 2015. "Gambling in contests with heterogeneous loss constraints," Economics Letters, Elsevier, vol. 136(C), pages 154-157.
    11. Seel, Christian & Stracky, Philipp, 2014. "Continuous Time Contests with Private Information," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100527, Verein für Socialpolitik / German Economic Association.
    12. Christian Seel & Philipp Strack, 2016. "Continuous Time Contests with Private Information," Mathematics of Operations Research, INFORMS, vol. 41(3), pages 1093-1107, August.
    13. Dmitry Ryvkin, 2022. "To Fight or to Give Up? Dynamic Contests with a Deadline," Management Science, INFORMS, vol. 68(11), pages 8144-8165, November.
    14. Marcel Nutz & Yuchong Zhang, 2021. "Mean Field Contest with Singularity," Papers 2103.04219, arXiv.org.
    15. Han Feng & David Hobson, 2013. "Gambling in contests with regret," Papers 1301.0719, arXiv.org.
    16. Marcel Nutz & Yuchong Zhang, 2021. "Reward Design in Risk-Taking Contests," Papers 2102.03417, arXiv.org, revised Nov 2021.
    17. Lang, Matthias & Seel, Christian & Strack, Philipp, 2014. "Deadlines in stochastic contests," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 134-142.
    18. Gorno, Leandro & Iachan, Felipe S., 2020. "Competitive real options under private information," Journal of Economic Theory, Elsevier, vol. 185(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seel, Christian & Strack, Philipp, 2012. "Continuois Time Contests," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 376, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Christian Seel & Philipp Strack, 2016. "Continuous Time Contests with Private Information," Mathematics of Operations Research, INFORMS, vol. 41(3), pages 1093-1107, August.
    3. Kimbrough, Erik O. & Laughren, Kevin & Sheremeta, Roman, 2020. "War and conflict in economics: Theories, applications, and recent trends," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 998-1013.
    4. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    5. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    6. Mendel, Moritz & Pieroth, Ferdinand & Seel, Christian, 2021. "Your failure is my opportunity—Effects of elimination in contests," Journal of Mathematical Economics, Elsevier, vol. 95(C).
    7. Kai A. Konrad & Dan Kovenock, 2010. "Contests With Stochastic Abilities," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 89-103, January.
    8. Matthias Kräkel, 2002. "U-Type versus J-Type Tournaments," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 614-637, December.
    9. Marco Faravelli, 2011. "The Important Thing Is Not (Always) Winning but Taking Part: Funding Public Goods with Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(1), pages 1-22, February.
    10. Ella Segev & Aner Sela, 2011. "Sequential All-Pay Auctions with Head Starts and Noisy Outputs," Working Papers 1106, Ben-Gurion University of the Negev, Department of Economics.
    11. J. Atsu Amegashie, 2009. "American Idol: should it be a singing contest or a popularity contest?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 33(4), pages 265-277, November.
    12. Llorente-Saguer, Aniol & Sheremeta, Roman M. & Szech, Nora, 2023. "Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions," European Economic Review, Elsevier, vol. 154(C).
    13. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    14. Konrad, Kai A. & Kovenock, Dan, 2009. "Multi-battle contests," Games and Economic Behavior, Elsevier, vol. 66(1), pages 256-274, May.
    15. Subhasish M. Chowdhury & Patricia Esteve‐González & Anwesha Mukherjee, 2023. "Heterogeneity, leveling the playing field, and affirmative action in contests," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 924-974, January.
    16. Konrad, Kai A., 2014. "Search duplication in research and design spaces — Exploring the role of local competition," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 222-228.
    17. Bastani, Spencer & Giebe, Thomas & Gürtler, Oliver, 2019. "A general framework for studying contests," MPRA Paper 97363, University Library of Munich, Germany.
    18. Subhasish Chowdhury & Oliver Gürtler, 2015. "Sabotage in contests: a survey," Public Choice, Springer, vol. 164(1), pages 135-155, July.
    19. Llorente-Saguer, Aniol & Sheremeta, Roman & Szech, Nora, 2016. "Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions," MPRA Paper 71202, University Library of Munich, Germany.
    20. Ron Seigel, 2009. "Asymmetric Contests with Conditional Investments," Levine's Working Paper Archive 814577000000000201, David K. Levine.

    More about this item

    Keywords

    Discontinuous games; Contests; Relative performance pay; Risk-taking behavior;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:148:y:2013:i:5:p:2033-2048. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.