Reward design in risk-taking contests

DOI10.1137/21M1397386MaRDI QIDQ5029935zbMATH OpenOpenAlexFDO

Authors Marcel Nutz, Yuchong Zhang

Publication date 15 February 2022

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

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

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)

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.

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Cites work

• A Mean Field Competition
• Continuous time contests with private information
• Embedding submartingales in wiener processes with drift, with applications to sequential analysis
• Gambling in contests
• Gambling in contests modelled with diffusions
• Gambling in contests with heterogeneous loss constraints
• Gambling in contests with random initial law
• Gambling in contests with regret
• Inequalities: theory of majorization and its applications
• Large tournament games
• Majorization and the Lorenz order with applications in applied mathematics and economics
• Terminal ranking games
• The Skorokhod embedding problem and its offspring

Cited in

(8)

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

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