Strategic Experimentation With Congestion

78 Pages Posted: 7 Nov 2018

Date Written: June 4, 2018

Abstract

This paper considers a two-player game of strategic experimentation with competition. Each agent faces a two-armed bandit problem where she continually chooses between her private risky arm and a common, safe arm. Each agent has exclusive access to her private arm. However, the common arm can only be activated by one agent at a time. This congestion creates negative payoff externalities. Our main finding is that congestion gives rise to new strategic considerations: players perceive a strategic option value from occupying the common arm, making it more attractive than in the absence of competition or when switching is irreversible.

Keywords: Strategic Experimentation, Multi-Armed Bandit, Bayesian Learning, Exponential Bandits, Congestion, Payoff Externalities

JEL Classification: C72, C73, D83

Suggested Citation

Thomas, Caroline, Strategic Experimentation With Congestion (June 4, 2018). Available at SSRN: https://ssrn.com/abstract=3266914 or http://dx.doi.org/10.2139/ssrn.3266914

Caroline Thomas (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
99
Abstract Views
759
Rank
482,506
PlumX Metrics