Bayesian Learning and the Optimal Investment Decision of the Firm
AbstractThis paper is about learning. It illustrates how in a two period allocation problem with uncertainty in each period, an economic agent's decisions are influenced by the knowledge that he is able to learn about the uncertainty. The time periods are linked through the learning process of the economic agent. The problem to be analysed is that faced by a firm deciding whether or not to invest in a new technology or production process, whose returns are not known with certainty. Because of the two period environment, the firm is able to experiment with the new process in the first period, and observe the results before making another investment decision at the beginning of the second. Goven the opportunity for learning, how will this affect the decision of the firm in the first period?
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 93 (1983)
Issue (Month): 369a (Supplement March)
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Other versions of this item:
- Tonks, Ian, 1981. "Bayesian Learning and the Optimal Investment Decision of the Firm," The Warwick Economics Research Paper Series (TWERPS) 192, University of Warwick, Department of Economics.
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- Alexander Ludwig and Alexander Zimper, 2013.
"Biased Bayesian Learning with an Application to the Risk-Free Rate Puzzle,"
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- Alexander Ludwig & Alexander Zimper, 2007. "A Parsimonious Model of Subjective Life Expectancy," MEA discussion paper series 07154, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Alexander Zimper & Alexander Ludwig, 2009.
"On attitude polarization under Bayesian learning with non-additive beliefs,"
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- Alexander Zimper & Alexander Ludwig, 2008. "On attitude polarization under Bayesian learning with non-additive beliefs," Working Papers 104, Economic Research Southern Africa.
- Alexander Zimper & Alexander Ludwig, 2007.
MEA discussion paper series
07155, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Alexander Zimper, 2011. "Do Bayesians learn their way out of ambiguity?," Working Papers 240, Economic Research Southern Africa.
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