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  5. Disentangling Exploration from Exploitation

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Disentangling Exploration from Exploitation

  • Alessandro Lizzeri
  • Eran Shmaya
  • Leeat Yariv
American Economic Review (Forthcoming)

Abstract

Starting from Robbins (1952), the literature on experimentation viamulti-armed bandits has wed exploration and exploitation. Nonetheless, in many applications, agents’ exploration and exploitation need not be intertwined: a policymaker may assess new policies different than the status quo; an investor may evaluate projects outside her portfolio. We characterize the optimal experimentation policy when exploration and exploitation are disentangled in the case of Poisson bandits with fully revealing news, considering news structures that allow for arrival of both good and bad news. The optimal policy features complete learning asymptotically, exhibits lots of persistence, but cannot be identified by an index à la Gittins.

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