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Managing Multiple Research Projects

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  • Alejandro Francetich
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    Abstract

    A decision maker can experiment on up to two alternatives simultaneously over time. One and only one of these alternatives can produce successes, according to a Poisson process with known arrival rate; but there is uncertainty as to which alternative is the profitable one. The decision maker only observes the outcomes of the alternatives chosen, and choosing each alternative entails a cost. Simultaneous experimentation involves higher costs but can produce more data. At the same time, since the alternatives are negatively correlated, the outcomes of either one are informative about the other. If the costs are high and she is sufficiently impatient, the decision maker never experiments on both alternatives at once. Otherwise, if she starts with a single alternative that produces no successes, she becomes gradually pessimistic and eventually takes on the other alternative while keeping the first one — despite the higher costs and the negative correlation. Keywords: Experimentation, two-armed bandits, multi-choice bandits, negatively correlated arms, Poisson process JEL Classification Numbers: D83, D90

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    Bibliographic Info

    Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 516.

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    Date of creation: 2014
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    Handle: RePEc:igi:igierp:516

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    1. Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," Discussion Papers in Economics 5332, University of Munich, Department of Economics.
    2. Keller, R Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," CEPR Discussion Papers 7270, C.E.P.R. Discussion Papers.
    3. Jean Guillaume Forand, 2010. "Keeping Your Options Open," RCER Working Papers 557, University of Rochester - Center for Economic Research (RCER).
    4. Dirk Bergemann & Juuso Vaimaki, 1999. "Stationary Multi Choice Bandit Problems," Cowles Foundation Discussion Papers 1240, Cowles Foundation for Research in Economics, Yale University.
    5. Nyarko, Yaw, 1994. "On the Convexity of the Value Function in Bayesian Optimal Control Problems," Economic Theory, Springer, Springer, vol. 4(2), pages 303-09, March.
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