An experimental study of decisions in dynamic optimization problems
AbstractWe study decisions of subjects who are given an incentive to solve dynamic optimization problems with the structure of a single-agent, one-sector, closed economy macroeconomic model. The decision task involves a sequence of choices of consumption and investment levels. Treatment variables consist of the initial endowment of capital stock, the production technology available to the economy, and the method of creating the structure of an infinite-horizon model. The study includes and contrasts data from both American and Japanese participants. We find that whether over- or underinvestment relative to the optimum occurs depends on the production technology, but not on the initial endowment of capital stock, nor the subject pool used, nor the method of implementing the infinite horizon. Sudden episodes of maximal consumption called binges, which are always suboptimal, are widely observed.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 15 (2000)
Issue (Month): 2 ()
Note: Received: December 7, 1998; revised version: March 12, 1999
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Other versions of this item:
- Noussair, C. & Matheny, K. & Olson, M., 1998. "An Experimental Study of Decisions in Dynamic Optimization Problems," Purdue University Economics Working Papers 1110, Purdue University, Department of Economics.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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