Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93767
Title: 
Authors: 
Keller, Godfrey
Rady, Sven
Year of Publication: 
2012
Series/Report no.: 
SFB/TR 15 Discussion Paper 396
Abstract: 
We study a continuous-time game of strategic experimentation in which the players try to assess the failure rate of some new equipment or technology. Breakdowns occur at the jump times of a Poisson process whose unknown intensity is either high or low. In marked contrast to existing models, we find that the cooperative value function does not exhibit smooth pasting at the efficient cut-off belief. This finding extends to the boundaries between continuation and stopping regions in Markov perfect equilibria. We characterize the unique symmetric equilibrium, construct a class of asymmetric equilibria, and elucidate the impact of bad versus good Poisson news on equilibrium outcomes.
Subjects: 
Strategic Experimentation
Two-Armed Bandit
Bayesian Learning
Poisson Process
Piecewise Deterministic Process
Markov Perfect Equilibrium
Differential-Difference Equation
Smooth Pasting
Continuous Pasting
JEL: 
C73
D83
O32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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