Searching and Learning by Trial and Error
- (pp. 2277-2308)
Abstract
I study a dynamic model of trial-and-error search in which agents do not have complete knowledge of how choices are mapped into outcomes. Agents learn about the mapping by observing the choices of earlier agents and the outcomes that are realized. The key novelty is that the mapping is represented as the realized path of a Brownian motion. I characterize for this environment the optimal behavior each period as well as the trajectory of experimentation and learning through time. Applied to new product development, the model shares features of the data with the well-known Product Life Cycle. (JEL D81, D83, D92, L26)Citation
Callander, Steven. 2011. "Searching and Learning by Trial and Error." American Economic Review, 101 (6): 2277-2308. DOI: 10.1257/aer.101.6.2277Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D25 Intertemporal Firm Choice, Investment, Capacity, and Financing
- L26 Entrepreneurship