Gambling in Contests with Heterogeneous Loss Constraints

In this paper, I study the impact of asymmetric loss constraints on risk-taking behavior in contests. More precisely, contestants have different maximal loss restrictions in the contest model of Seel and Strack (2013), where players choose when to stop a privately observed Brownian motion and the player who stops his process at the highest value wins a prize.I characterize the unique Nash equilibrium outcome and the equilibrium payoffs in closed form. Moreover, I derive comparative statics about bankruptcy risk and I relate the predictions to several other models