Strategic Experimentation with Heterogeneous Agents and Payoff Externalities
AbstractThis paper analyses a two-player game of strategic experimentation with two-armed bandits.At least one of the arms is risky in the sense that it may not yield a lumpsum payoff. There is payoff externality between the players and they differ in their ability to learn across the risky arm. Either player has to decide in a continous time regarding which arm to use. Two alternative settings are analysed. The first setting has two risky arms which are perfectly negatively correlated. The other one has one safe arm and one risky arm. I show that in equilibrium (Markovian) there is always too much of duplication which implies that with respect to a social planner's solution, risky arms are explored excessively.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1315.
Date of creation: 2013
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R&D competition; Two-armed Bandit; Duplication; Learning.;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-06 (All new papers)
- NEP-GTH-2013-12-06 (Game Theory)
- NEP-HPE-2013-12-06 (History & Philosophy of Economics)
- NEP-MIC-2013-12-06 (Microeconomics)
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