Arbeitspapier

Strategic Experimentation with Exponential Bandits

This paper studies a game of strategic experimentation with two-armed bandits whose risky arm might yield a payoff only after some exponentially distributed random time. Because of free-riding, there is an inefficiently low level of experimentation in any equilibrium where the players use stationary Markovian strategies with posterior beliefs as the state variable. After characterizing the unique symmetric Markovian equilibrium of the game, which is in mixed strategies, we construct a variety of pure-strategy equilibria. There is no equilibrium where all players use simple cut-off strategies. Equilibria where players switch finitely often between the roles of experimenter and free-rider all lead to the same pattern of information acquisition; the efficiency of these equilibria depends on the way players share the burden of experimentation among them. In equilibria where players switch roles infinitely often, they can acquire an approximately efficient amount of information, but the rate at which it is acquired still remains inefficient; moreover, the expected payoff of an experimenter exhibits the novel feature that it rises as players become more pessimistic. Finally, over the range of beliefs where players use both arms a positive fraction of the time, the symmetric equilibrium is dominated by any asymmetric one in terms of aggregate payoffs.

Language
Englisch

Bibliographic citation
Series: Munich Discussion Paper ; No. 2003-2

Classification
Wirtschaft
Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Public Goods
Management of Technological Innovation and R&D
Subject
Strategic Experimentation
Two-Armed Bandit
Exponential Distribution
Bayesian Learning
Markov Perfect Equilibrium
Public Goods

Event
Geistige Schöpfung
(who)
Cripps, Martin
Keller, Godfrey
Rady, Sven
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
(where)
München
(when)
2003

DOI
doi:10.5282/ubm/epub.4
Handle
URN
urn:nbn:de:bvb:19-epub-4-3
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Cripps, Martin
  • Keller, Godfrey
  • Rady, Sven
  • Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät

Time of origin

  • 2003

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