A model of experimentation with information externalities

Rolando M. Guzman, Gustavo Ventura

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

This paper presents a simple model of experimentation and information externality. Specifically, we analyze an experimentation game in which the consequences of the actions of each agent can be costlessly observed by other agents. Our analysis provides a complete characterization of the noncooperative equilibrium in stationary strategies. In particular, it shows that such an equilibrium is not efficient, because players stop experimenting when the social value of experimentation is still positive. We also prove, however, a Folk-type result according to which a socially efficient outcome can be sustained as an equilibrium when the players have memory of previous actions and are sufficiently patient. Finally, we indicate a large class of economic problems which provides motivation for our model and to which our approach might be applied.

Original languageEnglish (US)
Pages (from-to)9-34
Number of pages26
JournalJournal of Economic Dynamics and Control
Volume23
Issue number1
StatePublished - Sep 17 1998

    Fingerprint

Keywords

  • D62, D83, O31
  • Experimentation games
  • Informational externalities
  • Multi-armed bandits

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

Cite this