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On Games of Strategic Experimentation

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  • Rosenberg, Dinah

    ()

  • Salomon , Antoine

    ()

  • Vieille , Nicolas

    ()

Abstract

We study a class of symmetric strategic experimentation games. Each of two players faces a (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.

Suggested Citation

  • Rosenberg, Dinah & Salomon , Antoine & Vieille , Nicolas, 2013. "On Games of Strategic Experimentation," Les Cahiers de Recherche 1008, HEC Paris.
  • Handle: RePEc:ebg:heccah:1008
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    References listed on IDEAS

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    1. 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.
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    3. Philippe Aghion & Patrick Bolton & Christopher Harris & Bruno Jullien, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Oxford University Press, pages 621-654.
    4. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, January.
    5. 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.
    6. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, pages 751-772.
    7. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2007. "Social Learning in One-Arm Bandit Problems," Econometrica, Econometric Society, vol. 75(6), pages 1591-1611, November.
    8. Guiseppe Moscarini & Francesco Squintani, 2004. "Competitive Experimentation with Private Information," Cowles Foundation Discussion Papers 1489, Cowles Foundation for Research in Economics, Yale University.
    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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    13. McLennan, Andrew, 1984. "Price dispersion and incomplete learning in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 7(3), pages 331-347, September.
    14. Pauli Murto & Juuso Välimäki, 2011. "Learning and Information Aggregation in an Exit Game," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1426-1461.
    15. Rady, Sven & Keller, Godfrey, 2010. "Strategic experimentation with Poisson bandits," Theoretical Economics, Econometric Society.
    16. Dirk Bergemann & Juuso Valimaki, 2006. "Bandit Problems," Cowles Foundation Discussion Papers 1551, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Bonatti, Alessandro & Hörner, Johannes, 2017. "Learning to disagree in a game of experimentation," Journal of Economic Theory, Elsevier, vol. 169(C), pages 234-269.
    2. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.

    More about this item

    Keywords

    symmetric strategic experimentation games; equilibrium; strategic experimentation;

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General

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