A revision game of experimentation on a common threshold

Yi Chen

Journal of Economic Theory, 2020, vol. 186, issue C

Abstract: A revision game of experimentation is examined in which players search for an unknown threshold. Each player encounters individual random opportunities to revise her own action. Lower action saves flow cost, but the player whose action falls below the threshold suffers a costly breakdown and exits the game. The set of symmetric pure-strategy Markov equilibria has a simple characterization. The difference between these equilibria vanishes as the revision opportunity becomes infinitely frequent. In all such equilibria, players revise actions gradually over time and, absent breakdowns, settle asymptotically. The asymptotic level of actions decreases with the patience of the players, and the speed of decline in actions decreases with the number of players. In equilibrium, the endogenous arrival rate of breakdown is decreasing over time. The model extends to incorporate collateral damage from breakdowns, where two competing externalities jointly shape the dynamics.

Keywords: Experimentation; Free-riding; Markov perfect equilibrium; Information externality; Revision game (search for similar items in EconPapers)
JEL-codes: D81 D82 D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:186:y:2020:i:c:s0022053120300053

DOI: 10.1016/j.jet.2020.104997

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