Experimental Economics Seminar - OSub Kwon (Ohio State University)

Title: Strategic Experimentation with Uniform Bandit: An Experimental Study
Abstract: We study how people perform risky experimentation to acquire information when they can also learn from each other. We develop and experimentally test a two-armed bandit model adapted from that of Keller et al. (2005). Our model predicts that the information generated by a group of players is no more than that generated by a single player. To implement this model in the lab, we design a novel dynamic information structure that can trivialize the posterior calculation for any sequence of signal realizations. We find that 1) when experimenting alone, the median subject generates almost exactly the same amount as the theoretical prediction, that 2) when experimenting with others, the subjects tend to generate more information than they would do alone, which is against the theoretical prediction, and that 3) the subjects only react to the posterior belief and do not condition their actions on what other players' past actions, thus excluding the folk theorem type argument as the explanation.