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Strategic Learning in Teams

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  • Klein, Nicolas
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    Abstract

    This paper analyzes a two-player game of strategic experimentation with three-armed exponential bandits in continuous time. Players face replica bandits, with one arm that is safe in that it generates a known payoff, whereas the likelihood of the risky arms’ yielding a positive payoff is initially unknown. It is common knowledge that the types of the two risky arms are perfectly negatively correlated. I show that the efficient policy is incentive-compatible if, and only if, the stakes are high enough. Moreover, learning will be complete in any Markov perfect equilibrium with continuous value functions if, and only if, the stakes exceed a certain threshold.

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    File URL: http://epub.ub.uni-muenchen.de/13221/1/333.pdf
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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 333.

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    Date of creation: Jul 2010
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    Handle: RePEc:trf:wpaper:333

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    Related research

    Keywords: Strategic Experimentation; Three-Armed Bandit; Exponential Distribution; Poisson Process; Bayesian Learning; Markov Perfect Equilibrium;

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