Strategic observation with exponential bandits

We introduce strategic observation into Keller et al. (2005)'s game of experimentation with conclusive breakthroughs. There are two players who must decide when to start and when to stop observation, given that observation is costly and stopping observation is irreversible. We construct a class of symmetric Markov Perfect Equilibria in which, on path, players fully experiment before starting observation, and allocate only a fraction of the resource to the risky arm afterwards. Each equilibrium in this class outperforms the symmetric equilibrium of Keller et al. (2005) in terms of payoffs.