We theoretically explore the risk-taking behavior of two unequally-endowed risk-neutral agents who are presented with opportunities to play lotteries. We find that if the agents consider rank in the wealth distribution more important than wealth itself, then their risk preferences are distorted...

A meritocracy is modeled as a multiple-prize contest among agents who are heterogeneously endowed with talent and wealth and thus vary in the disutility of exerting effort and spending money to earn credentials. In equilibrium, many richer but less-talented agents obtain better credentials than...