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David Austen-Smith - Northwestern University
Monday 14 May 2018, 04:30pm - 06:00pm

On the Optimal Sequencing of Experiments (joint with César Martinelli)

Abstract:

Consider a decision maker who has to choose one of several alternatives, and who is imperfectly informed about the payoff of each of them. At each moment in time, the decision maker has to decide whether to stop and take one of the alternatives, or to continue researching the alternatives. New information is costly and is never conclusive. The focus is on the optimal exploration sequence. We provide a dynamic programming formulation of the decision maker’s problem with either a finite deadline or no deadline, and give necessary and sufficient conditions for research to take place for some prior beliefs about the alternatives. We show that, at least for short deadlines, the decision maker either explores the best alternative and stops after good news, or explores the second best alternative and stops after bad news, with the former path being optimal if the decision maker is relatively optimistic about the payoff of the alternatives.

 

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