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An experimental analysis of the bandit problem

Jeffrey Banks, David Porter and Mark Olson
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Mark Olson: CREED, University of Amsterdam, Amsterdam, THE NETHERLANDS

Economic Theory, 1997, vol. 10, issue 1, 55-77

Abstract: We investigate, in an experimental setting, the behavior of single decision makers who at discrete time intervals over an "infinite" horizon may choose one action from a set of possible actions where this set is constant over time, i.e. a bandit problem. Two bandit environments are examined, one in which the predicted behavior should always be myopic (the two-armed bandit) and the other in which the predicted behavior should never be myopic (the one-armed bandit). We also investigate the comparative static predictions as the underlying parameters of the bandit environments are changed. The aggregate results show that the behavior in the two bandit environments are quantitatively different and in the direction of the theoretical predictions.

JEL-codes: C91 C73 D81 D83 (search for similar items in EconPapers)
Date: 1997
Note: Received: October, 27, 1994; revised version February 27, 1996
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