Contests as selection mechanisms: The impact of risk aversion

Faculty/Professorship: Economic Theory  
Author(s): March, Christoph  ; Sahm, Marco  
Title of the Journal: Journal of Economic Behavior & Organization
ISSN: 0167-2681
Publisher Information: Amsterdam [u.a.] : Elsevier
Year of publication: 2018
Volume: 150
Pages: 114-131
Language(s): English
DOI: 10.1016/j.jebo.2018.03.020
We investigate how individual risk preferences affect the likelihood of selecting the more able contestant within a two-player Tullock contest. Our theoretical model yields two main predictions: First, an increase in the risk aversion of a player worsens her odds unless she already has a sufficiently large advantage. Second, if the prize money is sufficiently large, a less able but less risk averse contestant can achieve an equal or even higher probability of winning than a more able but more risk averse opponent. In a laboratory experiment we confirm both, the non-monotonic impact and the compensating effect of risk aversion on winning probabilities. Our results suggest a novel explanation for the gender gap and the optimality of limited monetary incentives in selection contests.
Keywords: Selection contest, Risk aversion, Competitive balance, Gender gap
Peer Reviewed: Ja
International Distribution: Ja
Type: Article
Year of publication: 28. June 2018