Risk attitudes and heterogeneity in simultaneous and sequential contests

Learning in rent-seeking contests with payoff risk and foregone payoff information

“…show that under exponential utility, total investment is always lower when all agents are either risk averse or risk neutral, compared to full risk neutrality. Jindapon and Yang (2017) show that with a generalized CARA utility function both risk averse and risk seeking players invest below the risk-neutral Nash equilibrium prediction in symmetric simultaneous two-player contests. Jindapon and Whaley (2015) use both exponential (CARA) and CRRA utility functions that exhibit risk-seeking preferences and show that in two-player contests with identical preferences imprudence increases over-investment, irrespective of the risk-aversion coefficient.…”

Auctioning risk: the all-pay auction under mean-variance preferences

“…Up to this point of our analysis we have focused on players who aim to avoid variance in their payoffs. Although risk aversion is a much more common assumption in economic studies, empirical studies have found risk seeking behaviour in multiple environments including investment games and inventive activities (see e.g., Åstebro 2003;Jindapon and Yang 2017). The topic of setting the right incentives for the alignment of managerial risk taking and investors' interests spans an entire literature.…”

Rent-seeking incentives in share contests

“…Although major advances have been made in developing the analysis of winner-take-all contests to capture non-linear evaluation of contest outcomes by allowing for risk aversion since the contribution of Hillman and Katz (1984) 1 , the same is not true of share contests: the two are not equivalent under this extension. Where share contests have been studied in the literature the payoff functions used have either been of the linear or quasi-linear form so 1 See, for instance, Long and Vousden (1987); Skaperdas and Gan (1995); Riaz et al (1995); Konrad and Schlesinger (1997); Treich (2010); Cornes and Hartley (2012); Jindapon and Whaley (2015); Schroyen and Treich (2016); Jindapon and Yang (2017), and Konrad (2009) and Congleton and Hillman (2015) for reviews. Long and Vousden (1987) consider a model in which individuals each contest a rent that they will ultimately receive a share of, but the share is determined randomly, the process being influenced by all contestants' choices of efforts.…”