Endogenous Learning from Incremental Actions

Join Julia Salmi for this week's Department of Economics Micro Seminar

  • Wed 23 Oct 19

    13:00 - 14:30

  • Colchester Campus

    Economics Common Room 5B.307

  • Event type

    Lectures, talks and seminars
    Department of Economics Micro Seminars

  • Event organiser

    Economics, Department of

In today's seminar Julia Salmi, from UCL, discusses her paper on Endogenous Learning from Incremental Actions


We study an experimentation problem where actions today have a long-lasting impact on information generation in the future. Actions are irreversible and generate information gradually over time. 

We solve for the optimal path of actions when the decision maker does not know the payoff-relevant state of the world. Because current choices have persistent effects, the problem has two state variables: a summary of past actions and the current belief on the state of the world. There is a novel informational trade-off as acting today speeds up information generation but postponing actions results in more informed choices.

Our two leading examples cover the monopoly pricing of durable goods with social learning and capacity expansion in a market with uncertain optimal size. We show that since the monopolist can internalize future benefits from learning, the monopolist's optimal solution may result in a higher social surplus than the competitive market in both examples.

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