Gambling in contests with random initial law

DOI10.1214/14-AAP1088zbMATH Open1335.60058arXiv1405.7801OpenAlexW2951326919MaRDI QIDQ259573FDOQ259573

David Hobson, Han Feng

Publication date: 11 March 2016

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: This paper studies a variant of the contest model introduced in Seel and Strack [J. Econom. Theory 148 (2013) 2033-2048]. In the Seel-Strack contest, each agent or contestant privately observes a Brownian motion, absorbed at zero, and chooses when to stop it. The winner of the contest is the agent who stops at the highest value. The model assumes that all the processes start from a common value $x_0>0$ and the symmetric Nash equilibrium is for each agent to utilise a stopping rule which yields a randomised value for the stopped process. In the two-player contest, this randomised value has a uniform distribution on $[0,2x_0]$. In this paper, we consider a variant of the problem whereby the starting values of the Brownian motions are independent, nonnegative random variables that have a common law $mu$. We consider a two-player contest and prove the existence and uniqueness of a symmetric Nash equilibrium for the problem. The solution is that each agent should aim for the target law $u$, where $u$ is greater than or equal to $mu$ in convex order; $u$ has an atom at zero of the same size as any atom of $mu$ at zero, and otherwise is atom free; on $(0,infty)$ $u$ has a decreasing density; and the density of $u$ only decreases at points where the convex order constraint is binding.

Full work available at URL: https://arxiv.org/abs/1405.7801

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zbMATH Keywords

Brownian motionstopping ruleNash equilibriumgambling contestrandom initial lawSeel-Strack problemSkorokhod embedding

Mathematics Subject Classification ID

Brownian motion (60J65) 2-person games (91A05) Stopping times; optimal stopping problems; gambling theory (60G40) Probabilistic games; gambling (91A60)

Cites Work

• The all-pay auction with complete information
• The value of information in asymmetric all-pay auctions
• Gambling in contests modelled with diffusions
• The stopping distributions of a Markov process
• The Skorokhod Embedding Problem and Model-Independent Bounds for Option Prices
• The War of Attrition in Continuous Time with Complete Information
• Gambling in contests
• Title not available (Why is that?)
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• \(\ell\)-selection principles for sequences of functions
• The Skorokhod embedding problem and its offspring

Cited In (9)

• Continuous Time Contests with Private Information
• On Skorokhod embeddings and Poisson equations
• Submission costs in risk-taking contests
• Betting and Equilibrium
• Title not available (Why is that?)
• Approximation, Randomization, and Combinatorial Optimization.. Algorithms and Techniques
• Gambling in contests with heterogeneous loss constraints
• Reward Design in Risk-Taking Contests
• A Mean Field Competition

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