Overcoming Free-Riding in Bandit Games

Johannes Hörner (), Nicolas Klein and Sven Rady
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Johannes Hörner: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Yale University [New Haven], CEPR - Centre for Economic Policy Research

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Abstract: This article considers a class of experimentation games with Lévy bandits encompassing those of Bolton and Harris (1999, Econometrica, 67, 349–374) and Keller, Rady, and Cripps (2005, Econometrica, 73, 39–68). Its main result is that efficient (perfect Bayesian) equilibria exist whenever players' payoffs have a diffusion component. Hence, the trade-offs emphasized in the literature do not rely on the intrinsic nature of bandit models but on the commonly adopted solution concept (Markov perfect equilibrium). This is not an artefact of continuous time: we prove that efficient equilibria arise as limits of equilibria in the discrete-time game. Furthermore, it suffices to relax the solution concept to strongly symmetric equilibrium.

Keywords: Two-armed bandit; Bayesian learning; Strategic experimentation; Strongly symmetric equilibrium (search for similar items in EconPapers)
Date: 2022-07
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Published in Review of Economic Studies, 2022, 89 (4), pp.1948-1992. ⟨10.1093/restud/rdab078⟩

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Related works:
Journal Article: Overcoming Free-Riding in Bandit Games (2022)
Working Paper: Overcoming Free-Riding in Bandit Games (2021)
Working Paper: Overcoming Free-Riding in Bandit Games (2021)
Working Paper: Overcoming Free-Riding in Bandit Games (2020)
Working Paper: Overcoming Free-Riding in Bandit Games (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04206821

DOI: 10.1093/restud/rdab078

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