Randomization and simplification in dynamic decision-making

Ehud Kalai, Eilon Solan*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Randomization adds beneficial flexibility to the construction of optimal simple plans in dynamic environments. A decision-maker, restricted to the use of simple plans, may find a stochastic plan that strictly outperforms all deterministic ones. This is true even in noninteractive deterministic environments where the decision-maker's choices have no influence on his signals nor on the future evolution of the system. We describe a natural decomposition of simple plans into two components: an action selection rule and a behavior modification rule. In noninteractive environments optimal simple plans do not require randomization in the action selection rule. Only randomization in the behavior modification rule may be necessary.

Original languageEnglish (US)
Pages (from-to)251-264
Number of pages14
JournalJournal of Economic Theory
Volume111
Issue number2
DOIs
StatePublished - Aug 1 2003

Keywords

  • Dynamic decision-making
  • Randomization
  • Simplification

ASJC Scopus subject areas

  • Economics and Econometrics

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