Contests as selection mechanisms: The impact of risk aversion

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe 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.

Strategic Investment Decisions in Multi-Stage Contests with Heterogeneous Players

“…First, it relates to the work on the impact of heterogeneity in contests in general, starting with Rosen (1986), who clearly suggests that unbalanced match-ups result in lower effort levels. Theoretical work strongly supports this 'discouragement effect'; see, e.g., Baik (1994), Stein (2002), Szymanski (2003), Konrad (2009), or March and Sahm (2018). Intuitively, underdogs lower their willingness to invest when winning becomes too costly, while favorites respond by lowering their investment as the outcome appears predefined.…”

Risk Aversion and Prudence in Contests

“…Lemma 1 implies that the effort levels or winning probabilities of two agents, one of which is more risk averse and downside risk averse, may coincide only if they differ also in some other characteristic besides risk preferences. Put differently, whenever Proposition 2 applies, keeping up with the less risk averse requires, ceteris paribus, an advantage in a second dimension, e.g., higher ability (March and Sahm, 2017).…”

Genre et inégalité de revenu : le cas des annonces de cours particuliers sur internet

“…un facteur discuté. Les femmes étant généralement plus averses au risque que les hommes (Charness et Gneezy, 2012 ;Hibbert, Lawrence et Prakash, 2013 ;March et Sahm, 2018) 4 , elles pourraient faire des choix de carrière différents qui se traduisent in fine par une différence de revenu. Ces résultats ont motivé un regain d'intérêt pour la formation et la transmission intergénérationnelle des préférences, notamment quand elles entraînent des inégalités entre individus (Gay, 2019).…”