Undiscounted bandit games

R Keller and Sven Rady

Games and Economic Behavior, 2020, vol. 124, issue C, 43-61

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, plus a free background signal, 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; Bayesian 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: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825620301111
Full text for ScienceDirect subscribers only

Related works:
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)
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:eee:gamebe:v:124:y:2020:i:c:p:43-61

DOI: 10.1016/j.geb.2020.08.003

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().