test Browse by Author Names Browse by Titles of Works Browse by Subjects of Works Browse by Issue Dates of Works

Advanced Search
& Collections
Issue Date   
Sign on to:   
Receive email
My Account
authorized users
Edit Profile   
About T-Space   

T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 5, Number 2 (May 2010) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/27188

Title: Strategic experimentation with Poisson bandits
Authors: Godfrey Keller; Department of Economics, University of Oxford
Sven Rady; Department of Economics, University of Munich
Keywords: Strategic experimentation, two-armed bandit, Poisson process, Bayesian learning, piecewise deterministic process, Markov perfect equilibrium, differential-difference equation
C73, D83
Issue Date: 17-May-2010
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 5, No 2 (2010)
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] We study a game of strategic experimentation with two-armed bandits where the risky arm distributes lump-sum payoffs according to a Poisson process. Its intensity is either high or low, and unknown to the players. We consider Markov perfect equilibria with beliefs as the state variable and show that all such equilibria exhibit an 'encouragement effect' relative to the single-agent optimum. There is no equilibrium in which all players use cut-off strategies. Owing to the encouragement effect, asymmetric equilibria in which players take turns playing the risky arm before all experimentation stops Pareto dominate the unique symmetric equilibrium. Rewarding the last experimenter with a higher continuation value increases the range of beliefs where players experiment, but may reduce the intensity of experimentation at more optimistic beliefs. This suggests that there is no equilibrium that uniformly maximizes the players' average payoff.
URI: http://hdl.handle.net/1807/27188
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20100275
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 5, Number 2 (May 2010)

Files in This Item:

File Description SizeFormat
20100275.pdf1.04 MBAdobe PDF

Items in T-Space are protected by copyright, with all rights reserved, unless otherwise indicated.