This program sets up a single-person decision problem in which the subject
pays a cost for each random draw from a specified uniform distribution of prize values.
This is a standard sequential search problem. The search sequence stops when a draw is
accepted, and the payoff is the accepted draw
minus the product of the search cost and the number of purchased draws.
Search models have proved useful in the analysis of frictions in macro models.
The classroom default setup involves a change in the search cost.
| | | | | | Deviations from optimal search may be related to biases, risk aversion, etc. See the summary of optimal search theory and experimental results in Chapter 29 of Holt (2006) Markets, Games, and Strategic Behavior (Addison-Wesley). |
Vecon Lab - April 16, 2014 |