Hail Mary Pass: Contests with Stochastic Progress
Abstract
This paper studies the equilibrium behavior in contests with stochastic progress. Participants have access to a safe action that makes progress deterministically, but they can also take risky moves that stochastically influence their progress towards the goal and thus their relative position. In the unique well-behaved Markov perfect equilibrium of this dynamic contest, the follower drops out if the leader establishes a substantial lead, but resorts to "Hail Marys" beforehand: no matter how low the return of the risky move is, the follower undertakes in an attempt to catch up. Moreover, if the risky move has a medium return (between high and low), the leader will also adopt it when the follower is close to dropping out - an interesting preemptive motive. We also examine the impact of such equilibrium behavior on the optimal prize allocation.
Cite
@article{arxiv.2305.07218,
title = {Hail Mary Pass: Contests with Stochastic Progress},
author = {Chang Liu},
journal= {arXiv preprint arXiv:2305.07218},
year = {2023}
}