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Learning from failure

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  • Andreas Blume
  • April Franco

Abstract

We study decentralized learning in organizations. Decentralization is captured through a symmetry constraint on agents? strategies. Among such attainable strategies, we solve for optimal and equilibrium strategies. We model the organization as a repeated game with imperfectly observable actions. A fixed but unknown subset of action profiles are successes and all other action profiles are failures. The game is played until either there is a success or the time horizon is reached. For any time horizon, including infinity, we demonstrate existence of optimal attainable strategies and show that they are Nash equilibria. For some time horizons, we can solve explicitly for the optimal attainable strategies and show uniqueness. The solution connects the learning behavior of agents to the fundamentals that characterize the organization: Agents in the organization respond more slowly to failure as the future becomes more important, the size of the organization increases and the probability of success decreases.

Suggested Citation

  • Andreas Blume & April Franco, 2002. "Learning from failure," Staff Report 299, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:299
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    References listed on IDEAS

    as
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    Cited by:

    1. Cushman, Mike, 2001. "Action research in the UK construction industry - the B-hive project," LSE Research Online Documents on Economics 24748, London School of Economics and Political Science, LSE Library.
    2. Andreas Blume, 2011. "Dynamic Coordination Via Organizational Routines," Working Paper 439, Department of Economics, University of Pittsburgh, revised Jan 2011.

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