Adaptive partial policy innovation: coping with ambiguity through diversification

Charles Manski

No CWP10/08, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

This paper develops a broad theme about policy choice under ambiguity through study of a particular decision criterion. The broad theme is that, where feasible, choice between a status quo policy and an innovation is better framed as selection of a treatment allocation than as a binary decision. Study of the static minimax-regret criterion and its adaptive extension substantiate the theme. When the optimal policy is ambiguous, the static minimax-regret allocation always is fractional absent large fixed costs or deontological considerations. In dynamic choice problems, the adaptive minimax-regret criterion treats each cohort as well as possible, given the knowledge available at the time, and maximizes intertemporal learning about treatment response.

JEL-codes: D7 H0 (search for similar items in EconPapers)
Date: 2008-04-22
New Economics Papers: this item is included in nep-knm
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Citations: View citations in EconPapers (2)

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