The Virtues of Hesitation

Urmee Khan and Maxwell Stinchcombe ()
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Maxwell Stinchcombe: University of Texas, Austin

No 201425, Working Papers from University of California at Riverside, Department of Economics

Abstract: Abstract. In many economic, political and social situations, circumstances change at random points in time, reacting is costly, and reactions appropri- ate 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.

Keywords: Nonconstant hazard rates; renewal processes; non-stationary semi-Markovian decision theory; optimal timing and delay (search for similar items in EconPapers)
Pages: 38 Pages
Date: 2012-09, Revised 2014-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming in American Economic Review

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https://economics.ucr.edu/repec/ucr/wpaper/201425.pdf First version, 2012 (application/pdf)
https://economics.ucr.edu/repec/ucr/wpaper/201425R.pdf Revised version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201425

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