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Overcoming Free-Riding in Bandit Games

Author

Listed:
  • Johannes Hörner

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Yale University [New Haven], CEPR - Centre for Economic Policy Research)

  • Nicolas Klein

    (UdeM - Université de Montréal, CIREQ - Centre interuniversitaire de recherche en économie quantitative)

  • Sven Rady

    (CEPR - Centre for Economic Policy Research, Universität Bonn = University of Bonn)

Abstract

This article considers a class of experimentation games with Lévy bandits encompassing those of Bolton and Harris (1999, Econometrica, 67, 349–374) and Keller, Rady, and Cripps (2005, Econometrica, 73, 39–68). Its main result is that efficient (perfect Bayesian) equilibria exist whenever players' payoffs have a diffusion component. Hence, the trade-offs emphasized in the literature do not rely on the intrinsic nature of bandit models but on the commonly adopted solution concept (Markov perfect equilibrium). This is not an artefact of continuous time: we prove that efficient equilibria arise as limits of equilibria in the discrete-time game. Furthermore, it suffices to relax the solution concept to strongly symmetric equilibrium.

Suggested Citation

  • Johannes Hörner & Nicolas Klein & Sven Rady, 2022. "Overcoming Free-Riding in Bandit Games," Post-Print hal-04206821, HAL.
    • Handle: RePEc:hal:journl:hal-04206821
    DOI: 10.1093/restud/rdab078
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    Cited by:

    1. Doruk Cetemen & Can Urgun & Leeat Yariv, 2023. "Collective Progress: Dynamics of Exit Waves," Journal of Political Economy, University of Chicago Press, vol. 131(9), pages 2402-2450.
    2. Hwang, Ilwoo, 2023. "Policy experimentation with repeated elections," Games and Economic Behavior, Elsevier, vol. 142(C), pages 623-644.

    More about this item

    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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