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Risk and risk aversion effects in contests with contingent payments

Author

Listed:
  • Liqun Liu

    (Texas A&M University)

  • Jack Meyer

    (Michigan State University)

  • Andrew J. Rettenmaier

    (Texas A&M University)

  • Thomas R. Saving

    (Texas A&M University)

Abstract

Contests by their very nature involve risk, winning and losing are both possible, and the gain from winning can itself be uncertain. The participants in a contest use resources to increase their chance of winning. The main focus of this analysis is on the effects of risk aversion and risk in contests where only winners pay for resources used to compete. When payment is contingent on winning, the effect of risk aversion is in the opposite direction of what occurs when costs are paid by both winners and losers. A number of contests observed in the marketplace that exhibit this contingent payment property are discussed.

Suggested Citation

  • Liqun Liu & Jack Meyer & Andrew J. Rettenmaier & Thomas R. Saving, 2018. "Risk and risk aversion effects in contests with contingent payments," Journal of Risk and Uncertainty, Springer, vol. 56(3), pages 289-305, June.
    • Handle: RePEc:kap:jrisku:v:56:y:2018:i:3:d:10.1007_s11166-018-9283-5
    DOI: 10.1007/s11166-018-9283-5
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