Advanced Search
MyIDEAS: Login to save this paper or follow this series

Keeping Your options Open

Contents:

Author Info

  • Jean Guillaume Forand

    (Department of Economics, University of Waterloo)

Abstract

In standard models of experimentation, the costs of project development consist of (a) the direct cost of running trials as well as (b)the implicit opportunity cost of leaving alternative projects idle. Another natural type of experimentation cost, the cost of holding on to the option of developing a currently inactive project, has not been studied. In a multi-armed bandit model of experimentation in which inactive projects have explicit maintenance costs and can be irreversibly discarded, I fully characterise optimal experimentation policies and show that the decision-maker's incentive to actively manage its options has important implication for the order of project development. In the model, an experimenter searches for a success among a number of projects by choosing both those to develop now and those to maintain for (potential) future development. In the absence of maintenance costs, optimal experimentation policies incentives to bring the option value of less promising projects forward, and under optimal experimentation policies, 'going -with-the-loser' can be optimal: projects that are less likely to succeed are sometimes developed rast.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://uwaterloo.ca/economics/sites/ca.economics/files/uploads/files/ForandKeepingYourOptionsOpen3.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 1301.

as in new window
Length: 33 pages
Date of creation: Feb 2013
Date of revision: Feb 2012
Handle: RePEc:wat:wpaper:1301

Contact details of provider:
Postal: Waterloo, Ontario, N2L 3G1
Phone: (519) 888-4567 ext 33695
Fax: (519) 725-0530
Web page: http://economics.uwaterloo.ca/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bergemann, Dirk & Valimaki, Juuso, 2001. "Stationary multi-choice bandit problems," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(10), pages 1585-1594, October.
  2. Sven Rady & Godfrey Keller, 2007. "Strategic Experimentation with Poisson Bandits," 2007 Meeting Papers, Society for Economic Dynamics 332, Society for Economic Dynamics.
  3. Nicolas Klein & Sven Rady, 2008. "Negatively Correlated Bandits," Working Papers, Bavarian Graduate Program in Economics (BGPE) 040, Bavarian Graduate Program in Economics (BGPE).
  4. Cripps, Martin & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," Discussion Papers in Economics, University of Munich, Department of Economics 4, University of Munich, Department of Economics.
  5. Banks, Jeffrey S & Sundaram, Rangarajan K, 1992. "Denumerable-Armed Bandits," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1071-96, September.
  6. R. Preston Mcafee & Hugo M. Mialon & Sue H. Mialon, 2010. "Do Sunk Costs Matter?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 48(2), pages 323-336, 04.
  7. Banks, Jeffrey S & Sundaram, Rangarajan K, 1994. "Switching Costs and the Gittins Index," Econometrica, Econometric Society, Econometric Society, vol. 62(3), pages 687-94, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Alejandro Francetich, 2014. "Managing Multiple Research Projects," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 516, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wat:wpaper:1301. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pat Gruber).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.