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Optimal experimentation and the perturbation method in the neighborhood of the augmented linear regulator problem

  • Cosimano, Thomas F.

The perturbation method is used to approximate optimal experimentation problems. The approximation is in the neighborhood of the linear regulator (LR) problem. The first order perturbation of the optimal decision under experimentation is a combination of the LR solution and a term that captures the impact of the uncertainty on the agent's value function. An algorithm is developed in a companion paper to quickly implement this procedure on the computer. As a result, the impact of optimal experimentation on an agent's decisions can be quantified and estimated for a large class of problems encountered in economics.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 6 (June)
Pages: 1857-1894

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:6:p:1857-1894
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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