"The Effect of Correlation and Payoff Interdependence on Learning"

(joint with Arina Nikandrova)

A firm chooses whether to invest in one of two projects. Projects’ values are correlated and initially unknown. The firm can dynamically learn the values through investigating the projects either in parallel or sequentially. An increase in either correlation or interdependence of project values leads to a reduction in the optimal cumulative research effort but does not affect the allocation of learning resources whenever the firm investigates the projects in parallel.