1. Reward Design in Risk-Taking Contests
- Author
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Yuchong Zhang and Marcel Nutz
- Subjects
Computer Science::Computer Science and Game Theory ,History ,General Economics (econ.GN) ,Polymers and Plastics ,Inequality ,media_common.quotation_subject ,0211 other engineering and technologies ,02 engineering and technology ,Industrial and Manufacturing Engineering ,FOS: Economics and business ,0502 economics and business ,FOS: Mathematics ,Stackelberg competition ,Optimal stopping ,Business and International Management ,Mathematics - Optimization and Control ,Economics - General Economics ,Mathematics ,media_common ,Numerical Analysis ,050208 finance ,021103 operations research ,Applied Mathematics ,05 social sciences ,Rank (computer programming) ,Principal (computer security) ,Mathematical Finance (q-fin.MF) ,Zero (linguistics) ,Optimization and Control (math.OC) ,Quantitative Finance - Mathematical Finance ,91A65, 91A15, 91A55 ,Risk taking ,Mathematical economics ,Finance - 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., To appear in SIAM Journal on Financial Mathematics
- Published
- 2022
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