Global and Approximate Global Optimality of Myopic Economic Decisions
AbstractIn 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 InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11224.
Date of creation: 01 Jan 1980
Date of revision:
Publication status: Published in Journal of Economic Dynamics and Control 1980, vol. 2, pp. 135-161
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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behavioral economics; dynamic stochastic control; planning horizons;
Other versions of this item:
- 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.
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
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