European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 1008: On Games of Strategic Experimentation

Dinah Rosenberg (), Antoine Salomon () and Nicolas Vieille ()

Abstract: 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: symmetric strategic experimentation games; equilibrium; strategic experimentation

JEL-codes: C00

38 pages, October 24, 2013

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