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Mineral exploration as a game of chance

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  • Bell, Peter N

Abstract

Exploration is a costly activity that helps a business improve their understanding of a potential mineral deposit. Yet, even with strong exploration results, the business faces uncertainty over the value of the mine. I model this situation as a game of chance. The game starts by giving an agent an asset with random value and ends when the agent chooses to accept the random value or reject it and receive zero instead. The agent can pay to learn more about the asset’s value as many times as they like before they end the game, but no amount of exploration will remove all uncertainty. I provide a decision rule for the agent based on an interval estimate for the asset value and analyze performance of the decision rule in a simulation experiment.

Suggested Citation

  • Bell, Peter N, 2015. "Mineral exploration as a game of chance," MPRA Paper 62159, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62159
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    References listed on IDEAS

    as
    1. Arrow, Kenneth J. & Chang, Sheldon, 1982. "Optimal pricing, use, and exploration of uncertain natural resource stocks," Journal of Environmental Economics and Management, Elsevier, vol. 9(1), pages 1-10, March.
    2. Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-1225, December.
    3. J. Eric Bickel & James E. Smith, 2006. "Optimal Sequential Exploration: A Binary Learning Model," Decision Analysis, INFORMS, vol. 3(1), pages 16-32, March.
    4. Cairns, Robert D, 1990. "The Economics of Exploration for Non-renewable Resources," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 361-395.
    5. David B. Brown & James E. Smith, 2013. "Optimal Sequential Exploration: Bandits, Clairvoyants, and Wildcats," Operations Research, INFORMS, vol. 61(3), pages 644-665, June.
    6. Hommes,Cars, 2015. "Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems," Cambridge Books, Cambridge University Press, number 9781107564978, November.
    7. Lin, C.-Y. Cynthia, 2009. "Estimating strategic interactions in petroleum exploration," Energy Economics, Elsevier, vol. 31(4), pages 586-594, July.
    8. Kenneth Hendricks & Dan Kovenock, 1989. "Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 164-182, Summer.
    9. Cairns, Robert D. & Van Quyen, Nguyen, 1998. "Optimal Exploration for and Exploitation of Heterogeneous Mineral Deposits," Journal of Environmental Economics and Management, Elsevier, vol. 35(2), pages 164-189, March.
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    Cited by:

    1. Bell, Peter, 2026. "Identifying the Median Grade-Tonnage Curve from the Global Database of VMS Copper Mining Projects," MPRA Paper 127617, University Library of Munich, Germany.
    2. Bell, Peter, 2025. "Counterfactual Simulation of Corporate Costs for Public Companies," MPRA Paper 126146, University Library of Munich, Germany.
    3. Bell, Peter, 2025. "Mining Exploration Business Valuation Simulations with Global VMS Deposits Database," MPRA Paper 126072, University Library of Munich, Germany.
    4. Bell, Peter, 2026. "Collected Works by Peter Bell from 2010 to 2026 on Munich Personal RePEc Archive," MPRA Paper 127748, University Library of Munich, Germany.

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    More about this item

    Keywords

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    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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