IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v6y1995i3p439-51.html
   My bibliography  Save this article

Optimal Learning with Costly Adjustment

Author

Listed:
  • Feldman, Mark
  • Spagat, Michael

Abstract

We formulate an infinite-horizon Bayesian learning model in which the planner faces a cost from switching actions that does not approach zero as the size of the change vanishes. We recast the model as a dynamic programming problem which will always have a continuous value function and an optimal policy. We show that the planner's beliefs will converge eventually to some stochastic limit belief which, however, is not necessarily a point mass on the "truth." The planner's actions will also converge, although not necessarily to an optimal action given the truth. A key implication of adjustment costs is that the planner will change her action only finitely many times. We present a simple example illustrating how adjustment costs can lead the planner to settle in the long run on an action that is far away from the optimal action given the "truth" and which yields a reward significantly below that of the optimal action.

Suggested Citation

  • Feldman, Mark & Spagat, Michael, 1995. "Optimal Learning with Costly Adjustment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(3), pages 439-451, November.
    • Handle: RePEc:spr:joecth:v:6:y:1995:i:3:p:439-51
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

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


    Cited by:

    1. Marschall, Paul, 2001. "Lernen und Lebensstilwandel in Transformationsökonomien," Wirtschaftswissenschaftliche Diskussionspapiere 07/2001, University of Greifswald, Faculty of Law and Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:6:y:1995:i:3:p:439-51. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.