Social Experimentation with Interdependent and Expanding Technologies

59 Pages Posted: 9 Feb 2012 Last revised: 25 Aug 2015

See all articles by Umberto Garfagnini

Umberto Garfagnini

University of Surrey - School of Economics

Bruno H. Strulovici

Northwestern University

Date Written: June 30, 2015

Abstract

How do successive, forward-looking agents experiment with interdependent and endogenous technologies? In this paper, trying a radically new technology not only is informative of the value of similar technologies, but also reduces the cost of experimenting with them, in effect expanding the space of affordable technologies. Successful radical experimentation has mixed effects: it improves the immediate outlook for further experimentation but decreases the value and the {\em marginal} value of experimentation in a longer term, resulting in less ambitious 'incremental' experimentation and in a reduced size of radical experimentation. Incremental experimentation lowers the option value of similar technologies, which may spur a new wave of radical experimentation. However, experimentation eventually stagnates for all parameters of the model.

Keywords: Experimentation, Innovation, Stagnation, Multi-Armed Bandit, Correlated Arms, Technologies, R&D

JEL Classification: C73, D83, O3

Suggested Citation

Garfagnini, Umberto and Strulovici, Bruno H., Social Experimentation with Interdependent and Expanding Technologies (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2001533 or http://dx.doi.org/10.2139/ssrn.2001533

Umberto Garfagnini

University of Surrey - School of Economics ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Bruno H. Strulovici (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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