Social experimentation with interdependent and expanding technologies

Umberto Garfagnini, Bruno Strulovici*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

How do successive, forward-looking agents experiment with interdependent and endogenous technologies? In this article, trying a radically new technology not only is informative of the value of similar technologies, but also reduces the cost of experimenting with them, in effect expanding the space of affordable technologies. Successful radical experimentation has mixed effects: it improves the immediate outlook for further experimentation but decreases the value and the marginal value of experimentation in a longer term, resulting in less ambitious "incremental" experimentation and in a reduced size of radical experimentation. Incremental experimentation lowers the option value of similar technologies, which may spur a new wave of radical experimentation. However, experimentation eventually stagnates for all parameters of the model.

Original languageEnglish (US)
Article numberrdw008
Pages (from-to)1579-1613
Number of pages35
JournalReview of Economic Studies
Volume83
Issue number4
DOIs
StatePublished - Oct 1 2016

Keywords

  • Correlated Arms
  • Experimentation
  • Innovation
  • Multi-Armed Bandit
  • R and D
  • Stagnation
  • Technologies

ASJC Scopus subject areas

  • Economics and Econometrics

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