Reward design in risk-taking contests

DOI10.1137/21M1397386zbMATH Open1483.91051arXiv2102.03417OpenAlexW4210875413MaRDI QIDQ5029935FDOQ5029935

Authors: Marcel Nutz, Yuchong Zhang 

Publication date: 15 February 2022

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: Following the risk-taking model of Seel and Strack, $n$ players decide when to stop privately observed Brownian motions with drift and absorption at zero. They are then ranked according to their level of stopping and paid a rank-dependent reward. We study the problem of a principal who aims to induce a desirable equilibrium performance of the players by choosing how much reward is attributed to each rank. Specifically, we determine optimal reward schemes for principals interested in the average performance and the performance at a given rank. While the former can be related to reward inequality in the Lorenz sense, the latter can have a surprising shape.

Full work available at URL: https://arxiv.org/abs/2102.03417

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zbMATH Keywords

optimal stoppingStackelberg gamestochastic contest

Mathematics Subject Classification ID

Stochastic games, stochastic differential games (91A15) Games of timing (91A55) Hierarchical games (including Stackelberg games) (91A65)

Cites Work

• Inequalities: theory of majorization and its applications
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• A Mean Field Competition
• Gambling in contests with heterogeneous loss constraints
• Gambling in contests with regret
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• Continuous time contests with private information
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Cited In (8)

• Ranking games and gambling: when to quit when you're ahead
• Submission costs in risk-taking contests
• Competitive problem solving and the optimal prize schemes
• An exit contract optimization problem
• Gambling in contests modelled with diffusions
• Gambling in contests with regret
• Reward schemes
• The role of correlation in diffusion control ranking games

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