Sequential Search with Adaptive Intensity

Abstract

This paper develops a tractable framework for analyzing compound search problems, where a searcher chooses search intensity adaptively in each period. We fully characterize the optimal search rule and value, decomposing the inter-temporal change of search intensity into the fall-back value effect and the deadline effect. We show that the optimal search intensity (value) is submodular (supermodular) in fall-back value and time. It follows that the fall-back value effect increases when the deadline approaches, and the deadline effect decreases when a searcher's fall-back value gets higher. We further quantify the value of recall and show that Morgan(1983)'s conjecture, that a searcher with full recall searches less intensively than one with no recall, is not true if the fall-back value is greater than a certain threshold. We also introduce some applications and extensions of our model.

Keywords: Search intensity; Search value; Fall-back value effect; Deadline effect; Value of Time; Value of recall; En/Dis-couragement effect

JEL Classification: D83, C61