Negatively Correlated Bandits

Nicolas Klein and Sven Rady

No 40, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: We analyze a two-player game of strategic experimentation with two-armed bandits. Each player has to decide in continuous time whether to use a safe arm with a known payoff or a risky arm whose likelihood of delivering payoffs is initially unknown. The quality of the risky arms is perfectly negatively correlated between players. In marked contrast to the case where both risky arms are of the same type, we find that learning will be complete in any Markov perfect equilibrium if the stakes exceed a certain threshold, and that all equilibria are in cutoff strategies. For low stakes, the equilibrium is unique, symmetric, and coincides with the planner’s solution. For high stakes, the equilibrium is unique, symmetric, and tantamount to myopic behavior. For intermediate stakes, there is a continuum of equilibria.

Pages: 26 pages
Date: 2008-02
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Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Negatively Correlated Bandits (2011)
Working Paper: Negatively Correlated Bandits (2008)
Working Paper: Negatively Correlated Bandits (2008)
Working Paper: Negatively Correlated Bandits (2008)
Working Paper: Negatively Correlated Bandits (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:040_klein_rady

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