Seminar

Learning to Disagree in a Game of Experimentation

Alessandro Bonatti (MIT Sloan School of Management)

October 11, 2016, 11:00–12:30

Toulouse

Room MS 001

Economic Theory Seminar

Abstract

We analyze strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” When actions are hidden, there exists a unique symmetric equilibrium that involves randomization over stopping times. With two players, this is the unique equilibrium. Randomization leads to dispersion in actions and to belief disagreement on the equilibrium path. The resulting lack of coordination has significant welfare consequences. In contrast, when actions are observable, the equilibrium is pure and welfare improves.