Time and State Dependence in an Ss Decision Experiment | Zendy

Jacopo Magnani | Zendy; Aspen Gorry | Zendy; Ryan Oprea | Zendy

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Time and State Dependence in an Ss Decision Experiment

Author(s) -

Jacopo Magnani,

Aspen Gorry,

Ryan Oprea

Publication year - 2015

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.20130267

Subject(s) - earnings , state dependent , brownian motion , state (computer science) , state variable , variable (mathematics) , econometrics , flow (mathematics) , mathematics , economics , statistical physics , microeconomics , control theory (sociology) , statistics , physics , mathematical economics , mathematical analysis , thermodynamics , algorithm , geometry , finance , control (management) , management

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)

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