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  4. January 2016
  5. Time and State Dependence in an Ss Decision Experiment

Time and State Dependence in an Ss Decision Experiment

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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)

Citation

Magnani, Jacopo, Aspen Gorry, and Ryan Oprea. 2016. "Time and State Dependence in an Ss Decision Experiment." American Economic Journal: Macroeconomics, 8 (1): 285-310. DOI: 10.1257/mac.20130267

Additional Materials

JEL Classification

  • C91 Design of Experiments: Laboratory, Individual
  • D21 Firm Behavior: Theory
  • D80 Information, Knowledge, and Uncertainty: General
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