Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v138y2017icp69-84.html
   My bibliography  Save this article

Risk attitudes and heterogeneity in simultaneous and sequential contests

Author

Listed:
  • Jindapon, Paan
  • Yang, Zhe
Abstract
We prove existence and uniqueness of equilibrium in rent-seeking contests in which players are heterogeneous in both risk preferences and production technology. Given identical linear production technology, if the number of risk-loving players is large enough, the aggregate investment in equilibrium will exceed the rent and all risk-neutral and risk-averse players will exit the contest. In simultaneous and sequential contests with two players, we can identify the favorite and underdog based on both players’ preference parameters. Our theoretical results suggest that subjects in some recent contest experiments behaved as if they were risk-loving.

Suggested Citation

  • Jindapon, Paan & Yang, Zhe, 2017. "Risk attitudes and heterogeneity in simultaneous and sequential contests," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 69-84.
    • Handle: RePEc:eee:jeborg:v:138:y:2017:i:c:p:69-84
    DOI: 10.1016/j.jebo.2017.04.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016726811730104X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2017.04.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Modica, Salvatore & Scarsini, Marco, 2005. "A note on comparative downside risk aversion," Journal of Economic Theory, Elsevier, vol. 122(2), pages 267-271, June.
    2. Paan Jindapon & Christopher Whaley, 2015. "Risk lovers and the rent over-investment puzzle," Public Choice, Springer, vol. 164(1), pages 87-101, July.
    3. Sheremeta, Roman M., 2010. "Experimental comparison of multi-stage and one-stage contests," Games and Economic Behavior, Elsevier, vol. 68(2), pages 731-747, March.
    4. Kyung H. Baik & Jason F. Shogren, 2008. "Strategic Behavior in Contests: Comment," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 439-442, Springer.
    5. Pierre von Mouche & Federico Quartieri (ed.), 2016. "Equilibrium Theory for Cournot Oligopolies and Related Games," Springer Series in Game Theory, Springer, number 978-3-319-29254-0, June.
    6. Onsong Shin & Michael R. Baye, 1999. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 89(3), pages 691-693, June.
    7. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1994. "The Solution to the Tullock Rent-Seeking Game When R Is Greater Than 2: Mixed-Strategy Equilibria and Mean Dissipation Rates," Public Choice, Springer, vol. 81(3-4), pages 363-380, December.
    8. Eckel, Catherine C. & El-Gamal, Mahmoud A. & Wilson, Rick K., 2009. "Risk loving after the storm: A Bayesian-Network study of Hurricane Katrina evacuees," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 110-124, February.
    9. Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 491-514, July.
    10. David Crainich & Louis Eeckhoudt, 2008. "On the intensity of downside risk aversion," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 267-276, June.
    11. Richard Cornes & Roger Hartley, 2005. "Asymmetric contests with general technologies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 923-946, November.
    12. Gneezy, Uri & Smorodinsky, Rann, 2006. "All-pay auctions--an experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 255-275, October.
    13. Nicolas Treich, 2010. "Risk-aversion and prudence in rent-seeking games," Public Choice, Springer, vol. 145(3), pages 339-349, December.
    14. Roman M. Sheremeta, 2011. "Contest Design: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 573-590, April.
    15. Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.
    16. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 989-994, November.
    17. Isaac, R Mark & James, Duncan, 2000. "Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-187, March.
    18. Martin Kaae Jensen, 2016. "Existence, Uniqueness, and Comparative Statics in Contests," Springer Series in Game Theory, in: Pierre von Mouche & Federico Quartieri (ed.), Equilibrium Theory for Cournot Oligopolies and Related Games, pages 233-244, Springer.
    19. Lim, Wooyoung & Matros, Alexander & Turocy, Theodore L., 2014. "Bounded rationality and group size in Tullock contests: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 155-167.
    20. Morgan, John, 2003. "Sequential Contests," Public Choice, Springer, vol. 116(1-2), pages 1-18, July.
    21. Avinash Dixit, 2008. "Strategic Behavior in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 431-438, Springer.
    22. Bellemare, Charles & Shearer, Bruce, 2010. "Sorting, incentives and risk preferences: Evidence from a field experiment," Economics Letters, Elsevier, vol. 108(3), pages 345-348, September.
    23. Brennan C. Platt & Joseph Price & Henry Tappen, 2013. "The Role of Risk Preferences in Pay-to-Bid Auctions," Management Science, INFORMS, vol. 59(9), pages 2117-2134, September.
    24. Richard Cornes & Roger Hartley, 2012. "Risk aversion in symmetric and asymmetric contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 247-275, October.
    25. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    26. Jindapon, Paan & Neilson, William S., 2007. "Higher-order generalizations of Arrow-Pratt and Ross risk aversion: A comparative statics approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 719-728, September.
    27. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1999. "The Incidence of Overdissipation in Rent-Seeking Contests," Public Choice, Springer, vol. 99(3-4), pages 439-454, June.
    28. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
    29. Szidarovszky, Ferenc & Okuguchi, Koji, 1997. "On the Existence and Uniqueness of Pure Nash Equilibrium in Rent-Seeking Games," Games and Economic Behavior, Elsevier, vol. 18(1), pages 135-140, January.
    30. Fonseca, Miguel A., 2009. "An experimental investigation of asymmetric contests," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 582-591, September.
    31. Cornes, Richard & Hartley, Roger, 2003. "Risk Aversion, Heterogeneity and Contests," Public Choice, Springer, vol. 117(1-2), pages 1-25, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jindapon, Paan & Sujarittanonta, Pacharasut & Viriyavipart, Ajalavat, 2022. "Prize-linked savings games: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 133(C), pages 202-229.
    2. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    3. Fu, Qiang & Wang, Xiruo & Wu, Zenan, 2021. "Multi-prize contests with risk-averse players," Games and Economic Behavior, Elsevier, vol. 129(C), pages 513-535.
    4. Fu, Qiang & Lyu, Youji & Wu, Zenan & Zhang, Yuanjie, 2022. "Expectations-based loss aversion in contests," Games and Economic Behavior, Elsevier, vol. 133(C), pages 1-27.
    5. Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2016. "Sharing contests with general preferences," Discussion Papers Series 573, School of Economics, University of Queensland, Australia.
    6. Dickson, Alex & MacKenzie, Ian A. & Sekeris, Petros G., 2018. "Rent-seeking incentives in share contests," Journal of Public Economics, Elsevier, vol. 166(C), pages 53-62.
    7. Bettina Klose & Paul Schweinzer, 2022. "Auctioning risk: the all-pay auction under mean-variance preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 881-916, June.
    8. Liqun Liu & Nicolas Treich, 2021. "Optimality of winner-take-all contests: the role of attitudes toward risk," Journal of Risk and Uncertainty, Springer, vol. 63(1), pages 1-25, August.
    9. Anderson, Lisa R. & Freeborn, Beth A., 2020. "A Rent Seeking Experiment with Leakage from the Contest Success Function," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    10. Paan Jindapon & Zhe Yang, 2020. "Free riders and the optimal prize in public‐good funding lotteries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1289-1312, September.
    11. Brookins, Philip & Jindapon, Paan, 2021. "Risk preference heterogeneity in group contests," Journal of Mathematical Economics, Elsevier, vol. 95(C).
    12. Lin, Chen & Xiao, Hui & Peng, Rui & Xiang, Yisha, 2021. "Optimal defense-attack strategies between M defenders and N attackers: A method based on cumulative prospect theory," Reliability Engineering and System Safety, Elsevier, vol. 210(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hoffmann, Magnus & Kolmar, Martin, 2017. "Distributional preferences in probabilistic and share contests," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 120-139.
    2. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    3. Paan Jindapon & Christopher Whaley, 2015. "Risk lovers and the rent over-investment puzzle," Public Choice, Springer, vol. 164(1), pages 87-101, July.
    4. Sheremeta, Roman, 2014. "Behavior in Contests," MPRA Paper 57451, University Library of Munich, Germany.
    5. Liqun Liu & Nicolas Treich, 2021. "Optimality of winner-take-all contests: the role of attitudes toward risk," Journal of Risk and Uncertainty, Springer, vol. 63(1), pages 1-25, August.
    6. repec:elg:eechap:15325_10 is not listed on IDEAS
    7. Sheremeta, Roman, 2014. "Behavioral Dimensions of Contests," MPRA Paper 57751, University Library of Munich, Germany.
    8. Philip Brookins & Dmitry Ryvkin, 2014. "An experimental study of bidding in contests of incomplete information," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 245-261, June.
    9. Emmanuel Dechenaux & Shakun D. Mago, 2023. "Contests with revisions," Experimental Economics, Springer;Economic Science Association, vol. 26(4), pages 915-954, September.
    10. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    11. Liqun Liu & Jack Meyer & Andrew J. Rettenmaier & Thomas R. Saving, 2018. "Risk and risk aversion effects in contests with contingent payments," Journal of Risk and Uncertainty, Springer, vol. 56(3), pages 289-305, June.
    12. Nava Kahana & Doron Klunover, 2017. "Sequential Lottery Contests with Multiple Participants," Working Papers tax-mpg-rps-2017-02, Max Planck Institute for Tax Law and Public Finance.
    13. Roman Sheremeta, 2018. "Experimental Research on Contests," Working Papers 18-07, Chapman University, Economic Science Institute.
    14. Chowdhury, Subhasish M. & Marini, Matteo M., 2024. "Overbidding and heterogeneous behavior in contest experiments:A meta-comment on cross-cultural differences," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 110(C).
    15. Llorente-Saguer, Aniol & Sheremeta, Roman M. & Szech, Nora, 2023. "Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions," European Economic Review, Elsevier, vol. 154(C).
    16. Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2016. "Sharing contests with general preferences," Discussion Papers Series 573, School of Economics, University of Queensland, Australia.
    17. Roman M. Sheremeta, 2016. "Impulsive Behavior in Competition: Testing Theories of Overbidding in Rent-Seeking Contests," Working Papers 16-21, Chapman University, Economic Science Institute.
    18. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    19. Llorente-Saguer, Aniol & Sheremeta, Roman & Szech, Nora, 2016. "Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions," MPRA Paper 71202, University Library of Munich, Germany.
    20. Fu, Qiang & Wang, Xiruo & Wu, Zenan, 2021. "Multi-prize contests with risk-averse players," Games and Economic Behavior, Elsevier, vol. 129(C), pages 513-535.
    21. Kyung Hwan Baik & Subhasish M. Chowdhury & Abhijit Ramalingam, 2020. "The effects of conflict budget on the intensity of conflict: an experimental investigation," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 240-258, March.

    More about this item

    Keywords

    Risk attitude; Simultaneous contest; Sequential contest; Rent dissipation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:138:y:2017:i:c:p:69-84. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.