Strategic Experimentation with Poisson Bandits
AbstractThis paper studies a game of strategic experimentation with two-armed bandits where the risky arm distributes lump-sum payoffs according to a Poisson process. The intensity of this process is either high or low, and unknown to the players. We consider Markov perfect equilibria with beliefs as the state variable. There is no equilibrium where all players use cut-off strategies, and all equilibria exhibit an `encouragement effect' relative to the single-agent optimum. The fact that a success on the risky arm is not fully revealing limits the payoff asymmetry as well as the inefficiency of asymmetric equilibria. We construct the unique symmetric MPE and, for a sufficiently high difference between the two possible intensities, an asymmetric equilibrium that dominates the symmetric one in terms of aggregate payoffs.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 332.
Date of creation: 2007
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Keller, Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," Discussion Papers in Economics 10575, University of Munich, Department of Economics.
- Keller, R Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," CEPR Discussion Papers 7270, C.E.P.R. Discussion Papers.
- Keller, Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 260, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- 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
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Strategic Experimentation with Exponential Bandits,"
Discussion Papers in Economics
4, University of Munich, Department of Economics.
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- Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
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