Global and Approximate Global Optimality of Myopic Economic Decisions
In 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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|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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