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Gambling in contests with regret
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Feng, Han and Hobson, David (David G.) (2016) Gambling in contests with regret. Mathematical Finance, 26 (3). pp. 674-695. doi:10.1111/mafi.12069 ISSN 0960-1627.
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Official URL: http://dx.doi.org/10.1111/mafi.12069
Abstract
This paper discusses the gambling contest introduced in Seel and Strack (2013, Gambling in Contests, Journal of Economic Theory, 148(5), 2033–2048) and considers the impact of adding a penalty associated with failure to follow a winning strategy. The Seel and Strack model consists of n-agents each of whom privately observes a transient diffusion process and chooses when to stop it. The player with the highest stopped value wins the contest, and each player's objective is to maximize her probability of winning the contest. We give a new derivation of the results of Seel and Strack based on a Lagrangian approach. Moreover, we consider an extension of the problem to a behavioral finance context in the sense of regret theory. In particular, an agent is penalized when her chosen strategy does not win the contest, but there existed an alternative strategy that would have resulted in victory.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics | ||||||||
Journal or Publication Title: | Mathematical Finance | ||||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||||
ISSN: | 0960-1627 | ||||||||
Official Date: | July 2016 | ||||||||
Dates: |
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Volume: | 26 | ||||||||
Number: | 3 | ||||||||
Page Range: | pp. 674-695 | ||||||||
DOI: | 10.1111/mafi.12069 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access |
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