Random Matching and Aggregate Uncertainty
AbstractRandom matching is often used in economic models as a means of introducing uncertainty in sequential decision problems. We show that random matching schemes that satisfy standard conditions on proportionality are not unique. Two examples show that in a simple growth model, radically di¤erent optimal behavior can result from distinct matching schemes satisfying identical proportionality conditions. That is, non-uniqueness has interesting economic implications since it a¤ects the reward and the transi- tion structures. We propose information entropy as a natural method for selecting unique matching structures for these models. Next, we give conditions on the reward and transition structures of sequential decision models under which the models are not a¤ected by non-uniqueness of the matching scheme.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8603.
Date of creation: 2008
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Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-DGE-2008-05-10 (Dynamic General Equilibrium)
- NEP-GTH-2008-05-10 (Game Theory)
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