lights. Your experts are divided into two groups. One believes in theory A and one in
theory B (A or B is true, not both). At present you consider the two theories equally
plausible. You have two options for your light system - systems X and Y.
If theory A is true and you adopt system X, then your payoff will be 1 with probability
0.8 and 0 with probability 0.2. If theory B is true and you adopt system X, then your
payoff will be 1 with probability 0.1, and 0 with probability 0.9. Your payoff under
system Y is 0.5.
You have a two-period time horizon. You can choose system Y now for the two periods
or you can experiment for the first period (i.e., use system X) and then choose a system
for the second period depending on your payoff in period 1.
Assuming that you wish to maximize the expected value of payoff, what strategy should
you follow.
Fig: 1