IDEAS home Printed from https://ideas.repec.org/p/ecm/wc2000/0878.html
   My bibliography  Save this paper

Strategic Experimentation: The Case of the Poisson Bandits

Author

Listed:
  • Martin Cripps

    (University of Warwick)

  • Godfrey Keller

    (London School of Economics)

  • Sven Rady

    (University of Munich)

Abstract

This paper studies a game of strategic experimentation in which the players learn from the experiments of others as well as their own. We first establish the efficient benchmark where the players co-ordinate in order to maximise joint expected payoffs, and then show that, because of free-riding, the strategic problem leads to inefficiently low levels of experimentation in any equilibrium when the players use stationary Markovian strategies. Efficiency can be approximately retrieved provided that the players adopt strategies which slow down the rate at which information is acquired; this is achieved by their taking periodic breaks from experimenting, which get progressively longer. In the public information case (actions and experimental outcomes are both observable), we exhibit a class of non-stationary equilibria in which the $\varepsilon$-efficient amount of experimentation is performed, but only in infinite time. In the private information case (only actions are observable, not outcomes), the breaks have two additional effects: not only do they enable the players to finesse the inference problem, but also they serve to signal their experimental outcome to the other player. We describe an equilibrium with similar non-stationary strategies in which the $\varepsilon$-efficient amount of experimentation is again performed in infinite time, but with a faster rate of information acquisition. The equilibrium rate of information acquisition is slower in the former case because the short-run temptation to free-ride on information acquisition is greater when information is public.

Suggested Citation

  • Martin Cripps & Godfrey Keller & Sven Rady, 2000. "Strategic Experimentation: The Case of the Poisson Bandits," Econometric Society World Congress 2000 Contributed Papers 0878, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0878
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/RePEc/es2000/0878.pdf
    File Function: main text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:0878. 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: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/essssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.