The Virtues of Hesitation: Optimal Timing in a Non-stationary World
American Economic Review
vol. 105,
no. 3, March 2015
(pp. 1147-76)
Abstract
In many economic, political, and social situations, circumstances change at random points in time, reacting is costly, and reactions appropriate to present circumstances may become inappropriate upon future changes, requiring further costly reaction. Waiting is informative if arrival of the next change has non-constant hazard rate. We identify two classes of situations: in the first, delayed reaction is optimal only when the hazard rate of further changes is decreasing; in the second, it is optimal only when the hazard rate of further changes is increasing. These results in semi-Markovian decision theory provide motivations for building delay into decision systems. (JEL C61, D72, D82, D83, K10, M11)Citation
Khan, Urmee, and Maxwell B. Stinchcombe. 2015. "The Virtues of Hesitation: Optimal Timing in a Non-stationary World." American Economic Review, 105 (3): 1147-76. DOI: 10.1257/aer.20121282Additional Materials
JEL Classification
- C61 Optimization Techniques; Programming Models; Dynamic Analysis
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- K10 Basic Areas of Law: General (Constitutional Law)
- M11 Production Management