This paper discusses the gambling contest introduced in Seel & Strack
(Gambling in contests, Discussion Paper Series of SFB/TR 15 Governance and the
Efficiency of Economic Systems 375, Mar 2012.) and considers the impact of
adding a penalty associated with failure to follow a winning strategy.
The Seel & 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 maximise their probability of winning the contest. We give a new derivation
of the results of Seel & Strack based on a Lagrangian approach. Moreover, we
consider an extension of the problem in which in the case when an agent is
penalised when their strategy is suboptimal, in the sense that they do not win
the contest, but there existed an alternative strategy which would have
resulted in victory