On Games of Strategic Experimentation
Games and Economic Behavior, Vol. 82, No. November, 2013
38 Pages Posted: 25 Oct 2013 Last revised: 6 Nov 2013
Date Written: October 24, 2013
We study a class of symmetric strategic experimentation games. Each of two players faces a (exponential) two-armed bandit problem, and must decide when to stop experimenting with the risky arm. The equilibrium amount of experimentation depends on the degree to which experimentation outcomes are observed, and on the correlation between the two individual bandit problems. When experimentation outcomes are public, the game is basically one of strategic complementarities. When experimentation decisions are public, but outcomes are private, the strategic interaction is more complex. We fully characterize the equilibrium behavior in both informational setups, leading to a clear comparison between the two. In particular, equilibrium payoffs are higher when equilibrium outcomes are public.
Keywords: strategic experimentation, bandit, experimentation
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