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On games of strategic experimentation

  • Rosenberg, Dinah
  • Salomon, Antoine
  • Vieille, Nicolas
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    We study a class of symmetric strategic experimentation games. Each of two players faces an (exponential) two-armed bandit problem, and must decide when to stop experimenting with the risky arm. The equilibrium amount of experimentation depends on the degree to which experimentation outcomes are observed, and on the correlation between the two individual bandit problems. When experimentation outcomes are public, the game is basically one of strategic complementarities. When experimentation decisions are public, but outcomes are private, the strategic interaction is more complex. We fully characterize the equilibrium behavior in both informational setups, leading to a clear comparison between the two. In particular, equilibrium payoffs are higher when equilibrium outcomes are public.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0899825613000882
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    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 82 (2013)
    Issue (Month): C ()
    Pages: 31-51

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    Handle: RePEc:eee:gamebe:v:82:y:2013:i:c:p:31-51
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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    1. Bergemann, D. & Hege, U., 2001. "The Financing of Innovation : Learning and Stopping," Discussion Paper 2001-16, Tilburg University, Center for Economic Research.
    2. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
    3. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    4. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2004. "Social Learning in One-Arm Bandit Problems," Discussion Papers 1396, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," Discussion Papers in Economics 5332, University of Munich, Department of Economics.
    6. Aoyagi, Masaki, 1998. "Mutual Observability and the Convergence of Actions in a Multi-Person Two-Armed Bandit Model," Journal of Economic Theory, Elsevier, vol. 82(2), pages 405-424, October.
    7. Sven Rady & Godfrey Keller, 2007. "Strategic Experimentation with Poisson Bandits," 2007 Meeting Papers 332, Society for Economic Dynamics.
    8. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter.
    9. Moscarini, Giuseppe & Squintani, Francesco, 2010. "Competitive experimentation with private information: The survivor's curse," Journal of Economic Theory, Elsevier, vol. 145(2), pages 639-660, March.
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