Learning to Disagree in a Game of Experimentation

52 Pages Posted: 5 Mar 2015

See all articles by Alessandro Bonatti

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Johannes Horner

Yale University - Cowles Foundation

Date Written: March 3, 2015

Abstract

We analyse strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” With hidden actions, there exists a unique equilibrium that involves randomization over stopping times. This randomization induces belief disagreement on the equilibrium path. When actions are observable, the equilibrium is pure, and welfare improves. We analyse the role of policy interventions such as subsidies for experimentation and risk-sharing agreements. We show that the optimal risk-sharing agreement restores the first-best outcome, independent of the monitoring structure.

Keywords: Experimentation, Free-riding, Mixed strategies, Monitoring, Delay

JEL Classification: C73, D83, O33

Suggested Citation

Bonatti, Alessandro and Horner, Johannes, Learning to Disagree in a Game of Experimentation (March 3, 2015). Cowles Foundation Discussion Paper No. 1991, Available at SSRN: https://ssrn.com/abstract=2573222 or http://dx.doi.org/10.2139/ssrn.2573222

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Johannes Horner (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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