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

See all articles by Eric Friedman

Eric Friedman

Cornell University - Operations Research & Industrial Engineering

Mikhael Shor

University of Connecticut Department of Economics

Scott Shenker

University of California, Berkeley - Department of Electrical Engineering & Computer Sciences (EECS)

Barry Sopher

Rutgers, The State University of New Jersey - Department of Economics

Date Written: October 1, 2012

Abstract

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

Friedman, Eric and Shor, Mikhael and Shenker, Scott and Sopher, Barry, An Experiment on Learning with Limited Information: Nonconvergence, Experimentation Cascades, and the Advantage of Being Slow (October 1, 2012). Games and Economic Behavior, Vol. 47, No. 2, 2004, pp. 325-352, Available at SSRN: https://ssrn.com/abstract=920759

Eric Friedman

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States
607-255-9130 (Phone)
607-255-9129 (Fax)

Mikhael Shor (Contact Author)

University of Connecticut Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

HOME PAGE: http://www.mikeshor.com/

Scott Shenker

University of California, Berkeley - Department of Electrical Engineering & Computer Sciences (EECS) ( email )

Berkeley, CA 94720-1712
United States
(415) 812-4840 (Phone)

Barry Sopher

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States
732-932-7197 (Phone)
732-932-7416 (Fax)

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