Risk Aversion and Prudence in Contests
12 Pages Posted: 8 May 2017
Date Written: April 04, 2017
Abstract
I examine the impact of risk preferences on efforts and winning probabilities in generalised Tullock contests between two players. The theoretical analysis yields two main results. First, I specify a sufficient condition on the agents’ comparative prudence under which a higher common level of risk aversion leads to lower aggregate effort in symmetric contests. Second, I show that for a certain range of parameters in asymmetric contests, higher risk-aversion will be a disadvantage if the agent is comparatively prudent.
Keywords: Tullock contest, risk aversion, prudence
JEL Classification: C720, D720
Suggested Citation: Suggested Citation
Sahm, Marco, Risk Aversion and Prudence in Contests (April 04, 2017). CESifo Working Paper Series No. 6417, Available at SSRN: https://ssrn.com/abstract=2964877 or http://dx.doi.org/10.2139/ssrn.2964877
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