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Basic Analysis of Forward-Looking Decision Making

In: Forward-Looking Decision Making: Dynamic Programming Models Applied to Health, Risk, Employment, and Financial Stability

Author

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  • Robert E. Hall

Abstract

ndividuals and families make key decisions that impact many aspects of financial stability and determine the future of the economy. These decisions involve balancing current sacrifice against future benefits. People have to decide how much to invest in health care, exercise, their diet, and insurance. They must decide how much debt to take on, and how much to save. And they make choices about jobs that determine employment and unemployment levels. Forward-Looking Decision Making is about modeling this individual or family-based decision making using an optimizing dynamic programming model. Robert Hall first reviews ideas about dynamic programs and introduces new ideas about numerical solutions and the representation of solved models as Markov processes. He surveys recent research on the parameters of preferences--the intertemporal elasticity of substitution, the Frisch elasticity of labor supply, and the Frisch cross-elasticity. He then examines dynamic programming models applied to health spending, long-term care insurance, employment, entrepreneurial risk-taking, and consumer debt. Linking theory with data and applying them to real-world problems, Forward-Looking Decision Making uses dynamic optimization programming models to shed light on individual behaviors and their economic implications.

Suggested Citation

  • Robert E. Hall, 2010. "Basic Analysis of Forward-Looking Decision Making," Introductory Chapters, in: Forward-Looking Decision Making: Dynamic Programming Models Applied to Health, Risk, Employment, and Financial Stability, Princeton University Press.
    • Handle: RePEc:pup:chapts:9220-1
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    Citations

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    Cited by:

    1. Davide Dragone & Paolo Vanin, 2022. "Substitution Effects in Intertemporal Problems," American Economic Journal: Microeconomics, American Economic Association, vol. 14(3), pages 791-809, August.
    2. Alfonso R. Sánchez Martín, 2019. "Elección de base de cotización de trabajadores autónomos: cálculo de incentivos," Studies on the Spanish Economy eee2019-29, FEDEA.
    3. François Le Grand & Xavier Ragot, 2017. "Optimal Fiscal Policy with Heterogeneous Agents and Aggregate Shocks," Sciences Po Economics Discussion Papers 2017-03, Sciences Po Departement of Economics.
    4. repec:hal:wpspec:info:hdl:2441/6bl2553ksc9vlq1fltjs9h1cht is not listed on IDEAS
    5. Stephen C. Newbold & Charles Griffiths & Chris Moore & Ann Wolverton & Elizabeth Kopits, 2013. "A Rapid Assessment Model For Understanding The Social Cost Of Carbon," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-40.
    6. repec:hal:spmain:info:hdl:2441/6bl2553ksc9vlq1fltjs9h1cht is not listed on IDEAS
    7. Grand, François Le & Ragot, Xavier, 2018. "A class of tractable incomplete-market models for studying asset returns and risk exposure," European Economic Review, Elsevier, vol. 103(C), pages 39-59.
    8. Alfonso R. Sánchez Martín, 2019. "Normativa de cotización y pensiones de trabajadores autónomos en España: ¿Se incentiva al ahorro de ciclo vital?," Studies on the Spanish Economy eee2019-18, FEDEA.

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