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Optimal Risk Taking in an Uneven Tournament Game with Risk Averse Players

  • Matthias Kräkel

    ()

We analyze the optimal choice of risk in a two-stage tournament game between two players that have different concave utility functions. At the first stage, both players simultaneously choose risk. At the second stage, both observe overall risk and simultaneously decide on effort or investment. The results show that those two effects which mainly determine risk taking - an effort effect and a likelihood effect - are strictly interrelated. This finding sharply contrasts with existing results on risk taking in tournament games with symmetric equilibrium efforts where such linkage can never arise. Hence, previous findings based on symmetry at the effort stage turn out to be nongeneric.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse4_2007.

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Length: 31
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:bon:bonedp:bgse4_2007
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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