Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93787
Authors: 
Seel, Christian
Strack, Philipp
Year of Publication: 
2012
Series/Report no.: 
SFB/TR 15 Discussion Paper 375
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. 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.
Subjects: 
Discontinuous games
Contests
Relative performance pay
Risktaking behavior
JEL: 
C72
C73
D81
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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