Time and State Dependence in an Ss Decision Experiment

Jacopo Magnani, Aspen Gorry and Ryan Oprea

American Economic Journal: Macroeconomics, 2016, vol. 8, issue 1, 285-310

Abstract: Flow earnings in a laboratory experiment decline the further a Brownian state variable, z, evolves from its optimal level, z*. Optimal state dependent models predict subjects will pay a fixed cost to return z to z* only when z strays outside a critical inaction region around the optimum. On average, subjects adjust at states remarkably close to optimal threshold levels but, as in the field, do not establish true "state dependent" inaction regions, suggesting significant "time dependent" components in adjustment rules. Structural estimates of subjective observation cost qualitatively account for variation in time dependence observed across treatments. (JEL C91, D21, D80)

JEL-codes: C91 D21 D80 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mac.20130267
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Citations: View citations in EconPapers (24)

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