Innovation contests with risk‐averse participants

Abstract

The innovation contest is well organized to provide solutions or ideas for companies. In the existing innovation contest literature, several articles assume that the contestants are risk neutral and show that a single‐winner award scheme is optimal. In this article, we assume that the contestants are risk averse and show that the risk aversion of contestants can explain the popularity of the multiple‐winner, convex (unequal) allocation scheme, which generalizes the findings of a prior study and coincides with practical observations. This result also possesses a certain robustness in several cases.