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Strategic investment and learning with private information

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  • KLEIN, Nicolas
  • WAGNER, Peter

Abstract

We study a two-player game of strategic experimentation in which agents choose the timing of investments which yield uncertain returns over time. Agents learn about future returns through privately observed signals, others’ investment decisions and from public experimentation outcomes when returns are realized. We characterize symmetric equilibria, and we relate the extent of strategic delay of investments in equilibrium to the primitives of the information structure. Agents invest without delay when the most optimistic intermediate belief exceeds a threshold. Otherwise, delay in investments induces a negative learning feed-back which may either escalate or dampen beliefs and investment choices. We highlight how private information in strategic experimentation can increase ex ante welfare because of strategic uncertainty and due to an «encouragement effect of private information»

Suggested Citation

  • KLEIN, Nicolas & WAGNER, Peter, 2018. "Strategic investment and learning with private information," Cahiers de recherche 2018-10, Universite de Montreal, Departement de sciences economiques.
    • Handle: RePEc:mtl:montde:2018-10
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    File URL: http://hdl.handle.net/1866/20922
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    2. Bobtcheff, Catherine & Mariotti, Thomas & Levy, Raphaël, 2021. "Negative results in science: Blessing or (winner’s) curse," TSE Working Papers 21-1202, Toulouse School of Economics (TSE).
    3. Bloch, Francis & Fabrizi, Simona & Lippert, Steffen, 2022. "Hiding and herding in market entry," Journal of Economic Theory, Elsevier, vol. 206(C).
    4. Thomas, Caroline, 2020. "Stopping with congestion and private payoffs," Journal of Mathematical Economics, Elsevier, vol. 91(C), pages 18-42.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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