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Strategic Experimentation with Competition and Private Arrival of Information

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  • Kaustav Das

    (Department of Economics, University of Exeter)

Abstract

This paper considers a two-armed bandit problem with one safe arm and one risky arm. The risky arm if good, can potentially experience two kinds of arrivals. One is publicly observable and the other is private to the agent who experiences it. The safe arm experiences publicly observable arrivals according to a given intensity. Private arrivals yield no payoff. Only the first publicly observed arrival(in any of the arms) yields a payo of 1 unit. Players start with a common prior about the quality of the risky arm. It has been shown that in a particular kind symmetric equilibrium, conditional on no arrival players tend to experiment too much along the risky arm if they start with too high a prior and experiment too less if they start with a low prior.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1404.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1404.

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Date of creation: 2014
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Handle: RePEc:exe:wpaper:1404

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Related research

Keywords: Two-armed Bandit; R&D competition; Duplication; Learning.;

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  1. Keller, R Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," CEPR Discussion Papers 7270, C.E.P.R. Discussion Papers.
  2. Nicolas Klein & Sven Rady, 2011. "Negatively Correlated Bandits," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 693-732.
  3. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
  4. Kaylan Chatterjee & Robert Evans, 2004. "Rivals' Search for Buried Treasure: Competition and Duplication in R&D," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 160-183, Spring.
  5. Fershtman, Chaim & Rubinstein, Ariel, 1997. "A Simple Model of Equilibrium in Search Procedures," Journal of Economic Theory, Elsevier, vol. 72(2), pages 432-441, February.
  6. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
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