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Reputation Concerns in Risky Experimentation

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  • Chia-Hui Chen
  • Junichiro Ishida
  • Wing Suen

Abstract

We develop a general model, with the exponential bandit as a special case, in which high-ability agents are more likely to achieve early success but also learn faster that their project is not promising. These counteracting effects give rise to a signaling model in which the single-crossing condition fails but a double-crossing property holds. We characterize the unique D1 equilibrium under double-crossing condition, and show that it tends to produce pooling. Ability to identify good projects and ability to execute a good project have different implications for the equilibrium allocation. Our model also incorporates public news, which generates dynamic distortions.

Suggested Citation

  • Chia-Hui Chen & Junichiro Ishida & Wing Suen, 2019. "Reputation Concerns in Risky Experimentation," ISER Discussion Paper 1060, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:1060
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    References listed on IDEAS

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    Cited by:

    1. Tomás Rodríguez Barraquer & Xu Tan, 2023. "A model of competitive signaling with rich message spaces," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 1-43, February.
    2. Chen, Chia-Hui & Ishida, Junichiro & Suen, Wing, 2024. "Signaling under double-crossing preferences: The case of discrete types," Journal of Mathematical Economics, Elsevier, vol. 114(C).
    3. Kaustav Das & Nicolas Klein, 2024. "Do Stronger Patents Lead To Faster Innovation? The Effect Of Clustered Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 915-954, May.
    4. Chia‐Hui Chen & Junichiro Ishida & Wing Suen, 2022. "Signaling Under Double‐Crossing Preferences," Econometrica, Econometric Society, vol. 90(3), pages 1225-1260, May.

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