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Strategic experimentation with Poisson bandits.

Abstract:

We study a game of strategic experimentation with two-armed bandits where the risky arm distributes lump-sum payoffs according to a Poisson process. Its intensity is either high or low, and unknown to the players. We consider Markov perfect equilibria with beliefs as the state variable and show that all such equilibria exhibit an “encouragement effect” relative to the single-agent optimum. There is no equilibrium in which all players use cutoff strategies. Owing to the encouragement effect, a...

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Publisher copy:
10.3982/TE595

Authors


Godfrey Keller More by this author
Journal:
Theoretical Economics
Volume:
5
Issue:
2
Publication date:
2010
DOI:
URN:
uuid:37250d5c-09c8-419f-8bdf-191a2cb2f948
Local pid:
oai:economics.ouls.ox.ac.uk:14975
Language:
English

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