Strategic observation with exponential bandits

Chantal Marlats and Lucie Ménager

Journal of Economic Theory, 2021, vol. 193, issue C

Abstract: We introduce strategic observation into Keller et al. (2005)'s game of experimentation with conclusive breakthroughs. There are two players who must decide when to start and when to stop observation, given that observation is costly and stopping observation is irreversible. We construct a class of symmetric Markov Perfect Equilibria in which, on path, players fully experiment before starting observation, and allocate only a fraction of the resource to the risky arm afterwards. Each equilibrium in this class outperforms the symmetric equilibrium of Keller et al. (2005) in terms of payoffs.

Keywords: Strategic experimentation; Exponential two-armed bandits; Costly observation (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:193:y:2021:i:c:s0022053121000491

DOI: 10.1016/j.jet.2021.105232

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