Exploration in Teams and the Encouragement Effect: Theory and Experimental Evidence

  title={Exploration in Teams and the Encouragement Effect: Theory and Experimental Evidence},
  author={Emma von Essen and Marieke Huysentruyt and Topi Miettinen},
  journal={Microeconomics: Asymmetric \& Private Information eJournal},
This paper analyzes a two-person, two-stage model of sequential exploration where both information and payoff externalities exist and tests the derived hypotheses in the laboratory. We theoretically show that, even when agents are self-interested and perfectly rational, the information externality induces an encouragement effect: a positive effect of first player exploration on the optimality of the second player exploring as well. When agents have other-regarding preferences and imperfectly… 
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