Undiscounted Bandit Games

R Keller and Sven Rady

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We analyze continuous-time games of strategic experimentation with two-armedbandits when there is no discounting. We show that for all specifications of priorbeliefs and payoff-generating processes that satisfy some separability condition, the unique symmetric Markov perfect equilibrium can be computed in a simple closed form involving only the expected current payoff of the risky arm and the expected full-information payoff, given current information. The separability condition holds in a variety of models that have been explored in the literature, all of which assume that the risky arm’s expected payoff per unit of time is time-invariant and actual payoffs are generated by a process with independent and stationary increments. The separability condition does not hold when the expected payoff per unit of time is subject to state-switching.

Keywords: Strategic Experimentation; Two-Armed Bandit; Markov-Perfect Equilibrium (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2015-09-21
New Economics Papers: this item is included in nep-gth and nep-mic
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Related works:
Journal Article: Undiscounted bandit games (2020)
Working Paper: Undiscounted Bandit Games (2020)
Working Paper: Undiscounted Bandit Games (2020)
Working Paper: Undiscounted Bandit Games (2019)
Working Paper: Undiscounted Bandit Games (2019)
Working Paper: UNDISCOUNTED BANDIT GAMES (2019)
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