Negatively Correlated Bandits
We analyse a two-player game of strategic experimentation with two-armed bandits. Either player has to decide in continuous time whether to use a safe arm with a known pay-off or a risky arm whose expected pay-off per unit of time is initially unknown. This pay-off can be high or low and is negatively correlated across players. We characterize the set of all Markov perfect equilibria in the benchmark case where the risky arms are known to be of opposite type and construct equilibria in cut-off strategies for arbitrary negative correlation. All strategies and pay-offs are in closed form. In marked contrast to the case where both risky arms are of the same type, there always exists an equilibrium in cut-off strategies, and there always exists an equilibrium exhibiting efficient long-run patterns of learning. These results extend to a three-player game with common knowledge that exactly one risky arm is of the high pay-off type. Copyright 2011, Oxford University Press.
Volume (Year): 78 (2011)
Issue (Month): 2 ()
|Contact details of provider:|| |
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.:
- 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.
- Keller, Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," Discussion Papers in Economics 10575, University of Munich, Department of Economics.
- Sven Rady & Godfrey Keller, 2007. "Strategic Experimentation with Poisson Bandits," 2007 Meeting Papers 332, Society for Economic Dynamics.
- Guiseppe Moscarini & Francesco Squintani, 2004. "Competitive Experimentation with Private Information," Cowles Foundation Discussion Papers 1489, Cowles Foundation for Research in Economics, Yale University.
- Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
- Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2004.
"Social Learning in One-Arm Bandit Problems,"
1396, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bergin, James & MacLeod, W Bentley, 1993. "Continuous Time Repeated Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 21-37, February.
- Camargo, Braz, 2007. "Good news and bad news in two-armed bandits," Journal of Economic Theory, Elsevier, vol. 135(1), pages 558-566, July.
- Cripps, Martin & Keller, Godfrey & Rady, Sven, 2003.
"Strategic Experimentation with Exponential Bandits,"
Discussion Papers in Economics
4, University of Munich, Department of Economics.
- Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
- Cripps, Martin William & Keller, R Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," CEPR Discussion Papers 3814, C.E.P.R. Discussion Papers.
- Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
- Kaylan Chatterjee & Robert Evans, 2004. "Rivals' Search for Buried Treasure: Competition and Duplication in R&D," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 160-183, Spring.
- BERGIN, James, 1990.
"A model of strategic behaviour in repeated games,"
CORE Discussion Papers
1990032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rosenberg, Dinah & Solan, Eilon & Vieille, Nicolas, 2009. "Informational externalities and emergence of consensus," Games and Economic Behavior, Elsevier, vol. 66(2), pages 979-994, July.
- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
- Dirk Bergemann & Juuso Valimaki, 2006. "Bandit Problems," Cowles Foundation Discussion Papers 1551, Cowles Foundation for Research in Economics, Yale University.
- Godfrey Keller & Sven Rady, 2005. "Strategic Experimentation with Undiscounted Bandits," 2005 Meeting Papers 473, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:78:y:2011:i:2:p:693-732. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.