A test of the principle of optimality

E  Carbone; J D  Hey

A test of the principle of optimality

E Carbone, J D Hey

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper reports on an experimental test of the Principle of Optimality in dynamic decision problems. This Principle, which states that the decision-maker should always choose the optimal decision at each stage of the decision problem, conditional on behaving optimally thereafter, underlies many theories of optimal dynamic decision making, but is normally difficult to test empirically without knowledge of the decision-maker's preference function. In the experiment reported here we use a new experimental procedure to get round this difficulty, which also enables us to shed some light on the decision process that the decision-maker is using if he or she is not using the Principle of Optimality - which appears to be the case in our experiments.

Original language	English
Pages (from-to)	263-281
Number of pages	19
Journal	THEORY AND DECISION
Volume	50
Issue number	3
Publication status	Published - May 2001

Keywords

backward induction
dynamic decision making
experiments
principle of optimality
software

Cite this

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