Choosing Fair Lotteries to Defeat the Competition

Wagman, Liad and Conitzer, Vincent (2008): Choosing Fair Lotteries to Defeat the Competition. Forthcoming in:

Abstract

We study the following game: each agent i chooses a lottery over nonnegative numbers whose expectation is equal to his budget b_i. The agent with the highest realized outcome wins and agents only care about winning). This game is motivated by various real-world settings where agents each choose a gamble and the primary goal is to come out ahead. Such settings include patent races, stock market competitions, and R&D tournaments. We show that there is a unique symmetric equilibrium when budgets are equal. We proceed to study and solve extensions, including settings where agents must obtain a minimum outcome to win; where agents choose their budgets (at a cost); and where budgets are private information.

• Item Type: MPRA Paper
• Language: English
• Keywords: Strategic gambling, Nash equilibrium, fair lotteries
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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