Choosing fair lotteries to defeat the competition
- 179 Downloads
We study the following game: each agent i chooses a lottery over nonnegative numbers whose expectation is equal to his budget b i . 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.
KeywordsStrategic gambling Nash equilibrium Fair lotteries
JEL ClassificationsC70 C72 D81 L20
Unable to display preview. Download preview PDF.
- Bagwell K, Staiger RW (1990) Risky R&D in oligopolistic product markets. Discussion paper no. 872. CMSEMS, Northwestern University, Evanston, ILGoogle Scholar
- Baye MR, Kovenock D, de Vries CG (1996) The all-pay auction with complete information. Econ Theory 8(2): 291–305Google Scholar
- Brown J (2010) Quitters never win: the (adverse) incentive effects of competing with superstars. Working paper. Kellogg School of ManagementGoogle Scholar
- Dulleck U, Frijters P, Podczeck K (July 2006) All-pay auctions with budget constraints and fair insurance. Working paper 0613. Department of Economics, Johannes Kepler University of Linz, Altenberger Strasse 69, A-4040 Linz, Aufhof, AustriaGoogle Scholar
- Skaperdas S (1996) Contest success functions. Econ Theory 7: 283–290Google Scholar
- Tullock G (1980) Efficient rent-seeking. Toward Theory Rent-Seek Soc 21(1): 106–112Google Scholar
- Vickers J (1985) Patent races and market structure. PhD thesis, Nuffield College, Oxford UniversityGoogle Scholar