Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93808 
Authors: 
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper No. 333
Publisher: 
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY), München
Abstract: 
This paper analyzes a two-player game of strategic experimentation with three-armed exponential bandits in continuous time. Players face replica bandits, with one arm that is safe in that it generates a known payoff, whereas the likelihood of the risky arms' yielding a positive payoff is initially unknown. It is common knowledge that the types of the two risky arms are perfectly negatively correlated. I show that the efficient policy is incentive-compatible if, and only if, the stakes are high enough. Moreover, learning will be complete in any Markov perfect equilibrium with continuous value functions if, and only if, the stakes exceed a certain threshold.
Subjects: 
Strategic Experimentation
Three-Armed Bandit
Exponential Distribution
Poisson Process
Bayesian Learning
Markov Perfect Equilibrium
JEL: 
C73
D83
O32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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