Negatively Correlated Bandits

Klein, Nicolas und Rady, Sven (August 2008): Negatively Correlated Bandits. SFB/TR 15 Discussion Paper No. 243

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 learn- ing 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 equilib- rium is unique, symmetric, and coincides with the planner's solution. For high stakes, the equilibrium is unique, symmetric, and tantamount to myopic behavior. For inter- mediate stakes, there is a continuum of equilibria.

• Dokumententyp: Paper
• Keywords: Strategic Experimentation, Two-Armed Bandit, Exponential Distribution, Poisson Process, Bayesian Learning, Markov Perfect Equilibrium
• Fakultät: Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems ; Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A8 - Strategische Erzeugung und Weitergabe von Informationen ; Volkswirtschaft ; Volkswirtschaft > Lehrstühle > Seminar für Dynamische Modellierung (aufgelöst)
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: C73, D83, O32
• Sprache: Englisch