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Global and approximate global optimality of myopic economic decisions

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  • Tesfatsion, Leigh

Abstract

In actual problem contexts, the time horizon over which plans are formulated must generally be short in relation to the history of the process as a whole. What loss of return is entailed by the use of these relatively short planning horizons? This article develops a general discrete-time dynamic stochastic control model that encompasses many well-known economic models. It derives sufficient conditions in this context for the equivalence of myopic (single period) and global (simultaneous multiple period) expected return maximization, and it provides a bound for the loss in global return when these conditions are not met. It also identifies properties of proxy short-horizon return functions which can be used to partially order them in terms of overall expected return performance. Annotated pointers to related work can be accessed here: http://www2.econ.iastate.edu/tesfatsi/dehome.htm
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  • Tesfatsion, Leigh, 1980. "Global and approximate global optimality of myopic economic decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 135-160, May.
    • Handle: RePEc:eee:dyncon:v:2:y:1980:i:1:p:135-160
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    Cited by:

    1. Forster, D. Lynn, 1985. "Optimum Phosphorus Fertilization," 1985 Annual Meeting, August 4-7, Ames, Iowa 278669, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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