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Learning from failure

  • Andreas Blume
  • April Franco

We study decentralized learning in organizations. Decentralization is captured through a symmetry constraint on agents’ strategies. Among such attainable strategies, we solve for optimal and equilibrium strategies. We model the organization as a repeated game with imperfectly observable actions. A fixed but unknown subset of action profiles are successes and all other action profiles are failures. The game is played until either there is a success or the time horizon is reached. For any time horizon, including infinity, we demonstrate existence of optimal attainable strategies and show that they are Nash equilibria. For some time horizons, we can solve explicitly for the optimal attainable strategies and show uniqueness. The solution connects the learning behavior of agents to the fundamentals that characterize the organization: Agents in the organization respond more slowly to failure as the future becomes more important, the size of the organization increases and the probability of success decreases.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 299.

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Date of creation: 2002
Date of revision:
Handle: RePEc:fip:fedmsr:299
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  8. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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  12. Blume, Andreas & DeJong, Douglas V. & Kim, Yong-Gwan & Sprinkle, Geoffrey B., 1997. "Evolution of Communication with Partial Common Interest," Working Papers 97-18, University of Iowa, Department of Economics.
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  18. Drew Fudenberg & David K. Levine, 1983. "Subgame-Perfect Equilibria of Finite- and Infinite-Horizon Games," Levine's Working Paper Archive 219, David K. Levine.
  19. Roy Radner & Roger Myerson & Eric Maskin, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 59-69.
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