International Journal of Game Theory

, Volume 41, Issue 1, pp 91–129 | Cite as

Choosing fair lotteries to defeat the competition

Article

Abstract

We study the following game: each agent i chooses a lottery over nonnegative numbers whose expectation is equal to his budget bi. The agent with the highest realized outcome wins (and agents only care about winning). This game is motivated by various real-world settings where agents each choose a gamble and the primary goal is to come out ahead. Such settings include patent races, stock market competitions, and R&D tournaments. We show that there is a unique symmetric equilibrium when budgets are equal. We proceed to study and solve extensions, including settings where agents choose their budgets (at a cost) and where budgets are private information.

Keywords

Strategic gambling Nash equilibrium Fair lotteries 

JEL Classifications

C70 C72 D81 L20 

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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Stuart School of BusinessIllinois Institute of TechnologyChicagoUSA
  2. 2.Departments of Computer Science and Economics, Levine Science Research CenterDuke UniversityDurhamUSA

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