Dynamic Delegation of Experimentation | Zendy

Yingni Guo | Zendy

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Dynamic Delegation of Experimentation

Author(s) -

Yingni Guo

Publication year - 2016

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20141215

Subject(s) - delegation , pessimism , principal (computer security) , cutoff , economics , microeconomics , mathematical economics , private information retrieval , econometrics , computer science , mathematics , statistics , management , philosophy , physics , computer security , epistemology , quantum mechanics

I study a dynamic relationship where a principal delegates experimentation to an agent. Experimentation is modeled as a one-armed bandit that yields successes following a Poisson process. Its unknown intensity is high or low. The agent has private information, his type being his prior belief that the intensity is high. The agent values successes more than the principal does, so prefers more experimentation. The optimal mechanism is a cutoff rule in the belief space: the cutoff gives pessimistic types total freedom but curtails optimistic types' behavior. Pessimistic types over-experiment while the most optimistic ones under-experiment. This delegation rule is time consistent.

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