Undiscounted Bandit Games

Sven Rady and R Keller

No 14046, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze undiscounted continuous-time games of strategic experimentation with two-armed bandits. The risky arm generates payoffs according to a Lévy process with an unknown average payoff per unit of time which nature draws from an arbitrary finite set. Observing all actions and realized payoffs, players use Markov strategies with the common posterior belief about the unknown parameter as the state variable. We show that the unique symmetric Markov perfect equilibrium can be computed in a simple closed form involving only the payoff of the safe arm, the expected current payoff of the risky arm, and the expected full-information payoff, given the current belief. In particular, the equilibrium does not depend on the precise specification of the payoff-generating processes.

Keywords: Strategic experimentation; Two-armed bandit; Strong long-run average criterion; Markov perfect equilibrium; Hjb equation; Viscosity solution (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-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP14046 (application/pdf)

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 (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14046

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14046

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().