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Strategic Learning in Teams

  • Klein, Nicolas

This paper analyzes a two-player game of strategic experimentation with three-armed exponential bandits in continuous time. Players face replica bandits, with one arm that is safe in that it generates a known payoff, whereas the likelihood of the risky arms’ yielding a positive payoff is initially unknown. It is common knowledge that the types of the two risky arms are perfectly negatively correlated. I show that the efficient policy is incentive-compatible if, and only if, the stakes are high enough. Moreover, learning will be complete in any Markov perfect equilibrium with continuous value functions if, and only if, the stakes exceed a certain threshold.

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File URL: https://epub.ub.uni-muenchen.de/13221/1/333.pdf
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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 333.

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Date of creation: Jul 2010
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Handle: RePEc:trf:wpaper:333
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  1. Rady, Sven & Keller, Godfrey, 2010. "Strategic experimentation with Poisson bandits," Theoretical Economics, Econometric Society, vol. 5(2), May.
  2. Klein, Nicolas & Rady, Sven, 2008. "Negatively Correlated Bandits," Discussion Papers in Economics 5332, University of Munich, Department of Economics.
  3. Bergin, James & MacLeod, W Bentley, 1993. "Continuous Time Repeated Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 21-37, February.
  4. Cripps, Martin & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," Discussion Papers in Economics 4, University of Munich, Department of Economics.
  5. Stein, Jeremy C. & Dewatripont, Mathias & Aghion, Philippe, 2008. "Academic Freedom, Private-Sector Focus, and the Process of Innovation," Scholarly Articles 3637074, Harvard University Department of Economics.
  6. Camargo, Braz, 2007. "Good news and bad news in two-armed bandits," Journal of Economic Theory, Elsevier, vol. 135(1), pages 558-566, July.
  7. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  8. Bank, Peter & Föllmer, Hans, 2003. "American Options, Multi-armed Bandits, and Optimal Consumption Plans : A Unifying View," SFB 373 Discussion Papers 2003,46, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  9. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
  10. Kaylan Chatterjee & Robert Evans, 2004. "Rivals' Search for Buried Treasure: Competition and Duplication in R&D," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 160-183, Spring.
  11. 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.
  12. Philippe Aghion & Mathias Dewatripont & Jeremy C. Stein, 2008. "Academic freedom, private-sector focus, and the process of innovation," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 617-635.
  13. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  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.
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