Strategic experimentation with asymmetric safe options

Kaustav Das, Nicolas Klein and Katharina Schmid

Economics Letters, 2024, vol. 239, issue C

Abstract: We study a two-player game of strategic experimentation with exponential bandits à la (Keller et al., 2005) where the safe-arm payoff is different across players. We show that, as in Das et al. (2020), there exists an equilibrium in cut-off strategies if and only if the difference in safe-arm payoffs is large enough. In the equilibrium in cutoff strategies, the player with the higher safe-arm payoff conducts less experimentation. This feature of the equilibrium offers an explanation for the fact that oftentimes technological innovations are due to startups rather than established market leaders.

Keywords: Two-armed bandit; Heterogeneous agents; Free-riding; Learning (search for similar items in EconPapers)
JEL-codes: C73 D83 O31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:239:y:2024:i:c:s016517652400226x

DOI: 10.1016/j.econlet.2024.111743

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