Chinese Restaurant Game - Part I: Theory of Learning with Negative Network Externality

In a social network, agents are intelligent and have the capability to make decisions to maximize their utilities. They can either make wise decisions by taking advantages of other agents’ experiences through learning, or make decisions earlier to avoid competitions from huge crowds. Both these two effects, social learning and negative network externality, play important roles in the decision process of an agent. While there are existing works on either social learning or negative network externality, a general study on considering both these two contradictory effects is still limited. We find that the Chinese restaurant process, a popular random process, provides a well-defined structure to model the decision process of an agent under these two effects. By introducing the strategic behavior into the non-strategic Chinese restaurant process, in Part I of this two-part paper, we propose a new game, called Chinese Restaurant Game, to formulate the social learning problem with negative network externality. Through analyzing the proposed Chinese restaurant game, we derive the optimal strategy of each agent and provide a recursive method to achieve the optimal strategy. How social learning and negative network externality influence each other under various settings is also studied through simulations. February 14, 2012 DRAFT