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Abstract

We study a two-player one-arm bandit problem in discrete time, in which the risky arm can have two possible types, high and low, the decision to stop experimenting is irreversible, and players observe each other's actions but not each other's payoffs. We prove that all equilibria are in cutoff strategies and provide several qualitative results on the sequence of cutoffs. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00807.x
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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 6 (November)
Pages: 1591-1611

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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:6:p:1591-1611

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1. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September.
   
   • Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
2. Decamps, Jean-Paul & Mariotti, Thomas, 2004. "Investment timing and learning externalities," Journal of Economic Theory, Elsevier, vol. 118(1), pages 80-102, September.
   
   • Décamps, Jean-Paul & Mariotti, Thomas, 2004. "Investment Timing and Learning Externalities," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
3. Jeremy Bulow & Paul Klemperer, 1991. "Rational Frenzies and Crashes," NBER Technical Working Papers 0112, National Bureau of Economic Research, Inc.
   
   • Bulow, Jeremy & Klemperer, Paul, 1994. "Rational Frenzies and Crashes," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 1-23, February.
   • Bulow, Jeremy I & Klemperer, Paul, 1991. "Rational Frenzies and Crashes," CEPR Discussion Papers 593, C.E.P.R. Discussion Papers.
4. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
   
   • Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes, and Wisdom after the Fact," Harvard Institute of Economic Research Working Papers 1594, Harvard - Institute of Economic Research.
   • Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes and Wisdom After the Fact," Discussion Papers 1992_18, Columbia University, Department of Economics.
5. Godfrey Keller & Sven Rady, 1998. "Optimal Experimentation in a Changing Environment," Game Theory and Information 9801001, EconWPA.
   
   • Keller, Godfrey & Rady, Sven, 1999. "Optimal Experimentation in a Changing Environment," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 475-507, July.
   • Godfrey Keller & Sven Rady, 1997. "Optimal Experimentation in a Changing Environment," STICERD - Theoretical Economics Paper Series 333, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
6. Cripps, Martin & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," Discussion Papers in Economics 4, University of Munich, Department of Economics.
   
   • Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
   • Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
   • Cripps, Martin William & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," CEPR Discussion Papers 3814, C.E.P.R. Discussion Papers.
7. Bergemann, Dirk & Valimaki, Juuso, 2000. "Experimentation in Markets," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 213-34, April.
   
   • Dirk Bergemann & Juuso Valimaki, 1996. "Experimentation in Markets," Discussion Papers 1220, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
   • Dirk Bergemann & Juuso Valimaki, 1999. "Experimentation in Markets," Cowles Foundation Discussion Papers 1214, Cowles Foundation for Research in Economics, Yale University.
8. Jean-Paul Decamps & Thomas Mariotti & Stephane Villeneuve, 2003. "Investment Timing under Incomplete Information," STICERD - Theoretical Economics Paper Series 444, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
   
   • Décamps, Jean-Paul & Mariotti, Thomas & Villeneuve, Stéphane, 2005. "Investment Timing under Incomplete Information," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
   • Décamps, Jean-Paul & Mariotti, Thomas & Villeneuve, Stéphane, 2000. "Investment Timing under Incomplete Information," IDEI Working Papers 115, Institut d'Économie Industrielle (IDEI), Toulouse, revised Apr 2004.
9. Guiseppe Moscarini & Francesco Squintani, 2004. "Competitive Experimentation with Private Information," Cowles Foundation Discussion Papers 1489, Cowles Foundation for Research in Economics, Yale University.
10. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
    
    • Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
11. Dirk Bergemann & Juuso Valimaki, 1996. "Market Diffusion with Two-Sided Learning," Cowles Foundation Discussion Papers 1138, Cowles Foundation for Research in Economics, Yale University.
    
    • Dirk Bergemann & Juuso Valimaki, 1997. "Market Diffusion with Two-Sided Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 773-795, Winter.
12. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
13. Chamley, Christophe, 2004. "Delays and equilibria with large and small information in social learning," European Economic Review, Elsevier, vol. 48(3), pages 477-501, June.
14. Martin W. Cripps & Godfrey Keller & Sven Rady, 2002. "Strategic Experimentation: The Case of Poisson Bandits," CESifo Working Paper Series 737, CESifo Group Munich.

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Citations

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Cited by:

1. Francis Bloch & Simona Fabrizi & Steffen Lippert, 2011. "Learning and Collusion in New Markets with Uncertain Entry Costs," Working Papers 1112, University of Otago, Department of Economics, revised Dec 2011.
   
   • Francis Bloch & Simona Fabrizi & Steffen Lippert, 2011. "Learning and Collusion in New Markets with Uncertain Entry Costs," Working Papers hal-00639049, HAL.
2. Nicolas Klein, 2009. "Free-Riding And Delegation In Research Teams," 2009 Meeting Papers 253, Society for Economic Dynamics.
3. Johannes Horner & Alessandro Bonatti, 2009. "Collaborating," 2009 Meeting Papers 1019, Society for Economic Dynamics.
4. Ufuk Akcigit & Qingmin Liu, 2011. "The Role of Information in Competitive Experimentation," PIER Working Paper Archive 11-038, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
5. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2012. "Strategic Experimentation with Private Payoffs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 387, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
6. Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," CEPR Discussion Papers 6983, C.E.P.R. Discussion Papers.
   
   • Nicolas Klein & Sven Rady, 2011. "Negatively Correlated Bandits," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 693-732.
   • Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 243, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
   • Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," Discussion Papers in Economics 5332, University of Munich, Department of Economics.
   • Sven Rady & Nicolas Klein, 2008. "Negatively Correlated Bandits," 2008 Meeting Papers 136, Society for Economic Dynamics.
   • Nicolas Klein & Sven Rady, 2008. "Negatively Correlated Bandits," Working Papers 040, Bavarian Graduate Program in Economics (BGPE).
7. Ufuk Akcigit & Qingmin Liu, 2011. "The Role of Information in Competitive Experimentation," NBER Working Papers 17602, National Bureau of Economic Research, Inc.
8. Tao Wang, 2011. "Dynamic Equilibrium Bunching," Working Papers 1291, Queen's University, Department of Economics.
9. Ufuk Akcigit & Qingmin Liu, 2011. "The Role of Information in Competitive Experimentation," Levine's Working Paper Archive 786969000000000321, David K. Levine.
10. Keller, Godfrey & Rady, Sven, 2012. "Breakdowns," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 396, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    
    • Godfrey Keller & Sven Rady, 2013. "Breakdowns," Levine's Working Paper Archive 786969000000000635, David K. Levine.
11. Rosenberg, Dinah & Solan, Eilon & Vieille, Nicolas, 2009. "Informational externalities and emergence of consensus," Games and Economic Behavior, Elsevier, vol. 66(2), pages 979-994, July.
12. Dinah Rosenberg & Antoine Salomon & Nicolas Vieille, 2010. "On Games of Strategic Experimentation," Working Papers hal-00579613, HAL.
13. Vieille, Nicolas & Rosenberg, Dinah & Solan, Eilon, 2006. "Informational externalities and convergence of behavior," Les Cahiers de Recherche 856, HEC Paris.

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