Rauh, Michael T. and Seccia, Giulio
Experimentation, full revelation and inspiration and collapse
Journal of Economic Behavior & Organization, 56, (2), . (doi:10.1016/j.jebo.2003.04.007).
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We consider a simple two-period experimentation model and explore some comparative statics implications of failures in the monotone likelihood ratio property (MLRP). A canonical example of a non-MLRP noise density is a U-shaped density on a bounded interval. In that case, the optimal first period action and information at the optimum are non-monotonic in the volatility of noise. Furthermore, there may be discontinuities in the optimal action with respect to changes in the volatility of noise and other parameters, in which the agent switches back and forth between a low, non-fully-revealing action and a high, fully-revealing action.
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