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Learning from failure

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  • Andreas Blume
  • April Franco

Abstract

We study decentralized learning in organizations. Decentralization is captured through a symmetry constraint on agents’ strategies. Among such attainable strategies, we solve for optimal and equilibrium strategies. We model the organization as a repeated game with imperfectly observable actions. A fixed but unknown subset of action profiles are successes and all other action profiles are failures. The game is played until either there is a success or the time horizon is reached. For any time horizon, including infinity, we demonstrate existence of optimal attainable strategies and show that they are Nash equilibria. For some time horizons, we can solve explicitly for the optimal attainable strategies and show uniqueness. The solution connects the learning behavior of agents to the fundamentals that characterize the organization: Agents in the organization respond more slowly to failure as the future becomes more important, the size of the organization increases and the probability of success decreases.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 299.

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Date of creation: 2002
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Handle: RePEc:fip:fedmsr:299

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Keywords: Game theory;

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References

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  1. Blume, Andreas, 2000. "Coordination and Learning with a Partial Language," Journal of Economic Theory, Elsevier, vol. 95(1), pages 1-36, November.
  2. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  3. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  4. Fudenberg, Drew & Levine, David I & Maskin, Eric, 1994. "The Folk Theorem with Imperfect Public Information," Econometrica, Econometric Society, vol. 62(5), pages 997-1039, September.
  5. Andreas Blume & Uri Gneezy, 2009. "Cognitive Forward Induction and Coordination without Common Knowledge: An Experimental Study," Working Papers 346, University of Pittsburgh, Department of Economics, revised May 2009.
  6. 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.
  7. Bhaskar, V., 2000. "Egalitarianism and Efficiency in Repeated Symmetric Games," Games and Economic Behavior, Elsevier, vol. 32(2), pages 247-262, August.
  8. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  9. Rubinstein,Ariel, 2000. "Economics and Language," Cambridge Books, Cambridge University Press, number 9780521593069, October.
  10. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  11. Crawford, Vincent P & Haller, Hans, 1990. "Learning How to Cooperate: Optimal Play in Repeated Coordination Games," Econometrica, Econometric Society, vol. 58(3), pages 571-95, May.
  12. Blume, Andreas & Gneezy, Uri, 2000. "An Experimental Investigation of Optimal Learning in Coordination Games," Journal of Economic Theory, Elsevier, vol. 90(1), pages 161-172, January.
  13. Ichiro Obara, 2000. "Private Strategy and Efficiency: Repeated Partnership Games Revisited," Econometric Society World Congress 2000 Contributed Papers 1449, Econometric Society.
  14. Radner, Roy, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 43-57, January.
  15. Blume, Andreas & DeJong, Douglas V. & Kim, Yong-Gwan & Sprinkle, Geoffrey B., 1997. "Evolution of Communication with Partial Common Interest," Working Papers 97-18, University of Iowa, Department of Economics.
  16. Beckmann, Martin J., 1977. "Management production functions and the theory of the firm," Journal of Economic Theory, Elsevier, vol. 14(1), pages 1-18, February.
  17. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-68, June.
  18. Fudenberg, Drew & Levine, David, 1983. "Subgame-perfect equilibria of finite- and infinite-horizon games," Journal of Economic Theory, Elsevier, vol. 31(2), pages 251-268, December.
  19. Blume, Andreas, et al, 1998. "Experimental Evidence on the Evolution of Meaning of Messages in Sender-Receiver Games," American Economic Review, American Economic Association, vol. 88(5), pages 1323-40, December.
  20. Rubinstein, Ariel, 1996. "Why Are Certain Properties of Binary Relations Relatively More Common in Natural Language?," Econometrica, Econometric Society, vol. 64(2), pages 343-55, March.
  21. Roberto A. Weber & Colin F. Camerer, 2003. "Cultural Conflict and Merger Failure: An Experimental Approach," Management Science, INFORMS, vol. 49(4), pages 400-415, April.
  22. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  23. Richard H. Day & E. Herbert Tinney, 1968. "How to Co-operate in Business without Really Trying: A Learning Model of Decentralized Decision Making," Journal of Political Economy, University of Chicago Press, vol. 76, pages 583.
  24. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  25. E. F. Shawyer, 1998. "Editorial," Maritime Policy & Management, Taylor & Francis Journals, vol. 25(2), pages 105-105, January.
  26. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  27. Thomas Wiseman, 2005. "A Partial Folk Theorem for Games with Unknown Payoff Distributions," Econometrica, Econometric Society, vol. 73(2), pages 629-645, 03.
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Cited by:
  1. Andreas Blume & April M. Franco & Paul Heidhues, 2011. "Dynamic coordination via organizational routines," ESMT Research Working Papers ESMT-11-10, ESMT European School of Management and Technology.

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