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Contests as selection mechanisms: The impact of risk aversion

Listed author(s):
  • March, Christoph
  • Sahm, Marco
Registered author(s):

    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.

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    Paper provided by Bamberg University, Bamberg Economic Research Group in its series BERG Working Paper Series with number 127.

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    Date of creation: 2017
    Handle: RePEc:zbw:bamber:127
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    Web page: http://www.uni-bamberg.de/vwl/forschung/berg/

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