Overcoming Free-Riding in Bandit Games

Sven Rady, Hörner, Johannes and Nicolas Klein

No 14075, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper considers a class of experimentation games with Lévy bandits encompassing those of Bolton and Harris (1999) and Keller, Rady and Cripps (2005). Its main result is that efficient (perfect Bayesian) equilibria exist whenever players’ payoffs have a diffusion component. Hence, the trade-offs emphasized in the literature do not rely on the intrinsic nature of bandit models but on the commonly adopted solution concept (MPE). This is not an artifact of continuous time: we prove that such equilibria arise as limits of equilibria in the discrete-time game. Furthermore, it suffices to relax the solution concept to strongly symmetric equilibrium.

Keywords: Two-armed bandit; Bayesian learning; Strategic experimentation; Strongly symmetric equilibrium (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
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Related works:
Journal Article: Overcoming Free-Riding in Bandit Games (2022)
Working Paper: Overcoming Free-Riding in Bandit Games (2022)
Working Paper: Overcoming Free-Riding in Bandit Games (2021)
Working Paper: Overcoming Free-Riding in Bandit Games (2021)
Working Paper: Overcoming Free-Riding in Bandit Games (2020)
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