An Experiment on Learning with Limited Information: Nonconvergence, Experimentation Cascades, and the Advantage of Being Slow
Posted: 3 Aug 2006 Last revised: 1 Oct 2012
Date Written: October 1, 2012
We present the results of an experiment on learning in a continuous-time low-information setting. For a dominance solvable version of a Cournot oligopoly with differentiated products, we find little evidence of convergence to the Nash equilibrium. In an asynchronous setting, characterized by players updating their strategies at different frequencies, play tends toward the Stackelberg outcome which favors the slower player. Convergence is significantly more robust for a serial cost sharing game, which satisfies a stronger solution concept of overwhelmed solvability. As the number of players grows, this improved convergence tends to diminish, seemingly driven by frequent and highly structured experimentation by players leading to a cascading effect in which experimentation by one player induces experimentation by others. These results have implications both for traditional oligopoly competition and for a wide variety of strategic situations arising on the Internet.
Keywords: learning, limited information, serial cost sharing, Cournot, Internet pricing, experiments
JEL Classification: C7, C92, D83
Suggested Citation: Suggested Citation