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Dynamic programming and behavioral rules

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  • Dale O. Stahl

    (University of Texas)

Abstract

The standard dynamic programming approach to exact optimization of sequential decision problems is extended to allow approximate optimization. An optimization-based solution is a behavioral rule that satisfies a modified Bellman equation. Existence of a solution is proven. Conversely, given any behavioral rule, there exist infinitely many dynamic programming problems for which the behavioral rule is an optimization-based solution. This result raises the question of whether we need to continue assuming decision makers optimize or approximately optimize.

Suggested Citation

  • Dale O. Stahl, 2017. "Dynamic programming and behavioral rules," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 165-174, October.
    • Handle: RePEc:spr:etbull:v:5:y:2017:i:2:d:10.1007_s40505-016-0110-3
    DOI: 10.1007/s40505-016-0110-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic programming; Approximate optimization; Behavioral rules;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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