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Experimenting with Strategic Experimentation: Risk Taking, Neighborhood Size and Network Structure

Author

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  • Niels D. Grosse

    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

Abstract

This paper investigates the effects of neighborhood size and network structure on strategic experimentation. We analyze a multi-arm bandit game with one safe and two risky alternatives. In this setting, risk taking produces a learning externality and an opportunity for free riding. We conduct a laboratory experiment to investigate whether group size and the network structure affect risk taking. We find that group size has an effect on risk taking that is qualitatively in line with equilibrium predictions. Introducing an asymmetry among agents in the same network with respect to neighborhood size leads to substantial deviations from equilibrium play. Findings suggests that subjects react to changes in their direct neighborhood but fail to play a best-response to their position within the network.

Suggested Citation

  • Niels D. Grosse, 2010. "Experimenting with Strategic Experimentation: Risk Taking, Neighborhood Size and Network Structure," Jena Economics Research Papers 2010-011, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2010-011
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2010/wp_2010_011.pdf
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    Cited by:

    1. Vincent Mak & Rami Zwick, 2014. "Experimenting and learning with localized direct communication," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 262-284, June.

    More about this item

    Keywords

    strategic experimentation; experiment; bandit game; risk taking;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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