Liski, Matti and Salanié, François (2020) Catastrophes, delays, and learning. TSE Working Paper, n. 20-1148, Toulouse

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We propose a simple and general model of experimentation in which reaching untried levels of a stock variable may, after a stochastic delay, lead to a catastrophe. Hence, at any point in time a catastrophe might well be under way, due to past experiments. We show how to measure this legacy of the past from prior beliefs and the chronicle of stock levels. We characterize the optimal policy as a function of the legacy and show that it leads to a new protocol for planning that applies to a general class of problems, encompassing the study of pandemics or climate change. Several original policy predictions follow, e.g., experimentation can stop but resume later.

Item Type: Monograph (Working Paper)
Language: English
Date: September 2020
Place of Publication: Toulouse
Uncontrolled Keywords: catastrophes, experimentation, delays
JEL Classification: C61 - Optimization Techniques; Programming Models; Dynamic Analysis
D81 - Criteria for Decision-Making under Risk and Uncertainty
Q54 - Climate; Natural Disasters
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 01 Oct 2020 08:23
Last Modified: 09 Oct 2023 09:21
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