Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2019

Font Size:  Small  Medium  Large

Strategic Experimentation with Asymmetric Information

Miaomiao Dong*

Date: 2019-05-05 10:15 am – 10:45 am
Last modified: 2019-04-14

Abstract


I study strategic experimentation, with one player initially being better informed about the state of nature than the other. Players are otherwise symmetric, and observe past experimentation decisions and outcomes. I construct an equilibrium in which a mutual encouragement effect arises: as the public information becomes discouraging, the informed player's high effort continuously brings in good news, encouraging the uninformed player to experiment; in return, the uninformed player's experimentation pattern yields an increasing reward, encouraging the informed player to experiment. Due to this effect, players' total effort can increase over time, and the uninformed player may grow increasingly optimistic, despite the discouraging public information. Moreover, creating information asymmetry improves total welfare if the informed player's initial signal is sufficiently precise.

Full Text: PDF