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Global and Approximate Global Optimality of Myopic Economic Decisions

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  • Tesfatsion, Leigh S.

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://www.econ.iastate.edu/tesfatsi/dehome.htm

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11224.

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Date of creation: 01 Jan 1980
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Publication status: Published in Journal of Economic Dynamics and Control 1980, vol. 2, pp. 135-161
Handle: RePEc:isu:genres:11224

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: behavioral economics; dynamic stochastic control; planning horizons;

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