Articles

On Games of Strategic Experimentation

D. ROSENBERG, A. SALOMON, Nicolas VIEILLE

Games and Economic Behavior

November 2013, vol. 82, pp.31-51

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Keywords: Strategic experimentation, Optimal stopping, Real options, Incomplete information

http://ssrn.com/abstract=2344788


Westudyaclassofsymmetricstrategicexperimentationgames.Eachoftwoplayersfacesan(exponential)two-armedbanditproblem,andmustdecidewhentostopexperimentingwiththeriskyarm.Theequilibriumamountofexperimentationdependsonthedegreetowhichexperimentationoutcomesareobserved,andonthecorrelationbetweenthetwoindividualbanditproblems.Whenexperimentationoutcomesarepublic,thegameisbasicallyoneofstrategiccomplementarities.Whenexperimentationdecisionsarepublic,butoutcomesareprivate,thestrategicinteractionismorecomplex.Wefullycharacterizetheequilibriumbehaviorinbothinformationalsetups,leadingtoaclearcomparisonbetweenthetwo.Inparticular,equilibriumpayoffsarehigherwhenequilibriumoutcomesarepublic.


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