Reputation Concerns in Risky Experimentation

Author:

Chen Chia-Hui1,Ishida Junichiro2,Suen Wing3

Affiliation:

1. Kyoto University

2. Osaka University

3. University of Hong Kong

Abstract

Abstract High-ability agents are more likely to achieve early success in risky experimentation, but learn faster that their project is not promising. These counteracting effects give rise to a signaling model with double-crossing property. This property tends to induce homogenization of quitting times between types, which in turn leads to some pooling in equilibrium. Low-ability agents may hold out to continue their project for the prospect of pooling with the high type, despite having a negative instantaneous net payoff. A war-of-attrition mechanism causes low-ability agents to quit only gradually over time, and to stop quitting for a period immediately before all agents exit.

Funder

Japan Society for the Promotion of Science

Osaka University

Publisher

Oxford University Press (OUP)

Subject

General Economics, Econometrics and Finance

Reference28 articles.

1. Reputation and Survival: Learning in a Dynamic Signalling Model;Bar-Isaac;Review of Economic Studies,2003

2. A Theory of Conformity;Bernheim;Journal of Political Economy,1994

3. More Haste, Less Speed? Signaling through Investment Timing;Bobtcheff;American Economic Journal: Microeconomics,2017

4. Career Concerns with Exponential Learning;Bonatti;Theoretical Economics,2017

5. Strategic Experimentation with Erlang Bandits;Boyarchenko,2017

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