Learning and Smooth Stopping

31 Pages Posted: 5 Jun 2008

See all articles by Robin A. Mason

Robin A. Mason

University of Southampton - Division of Economics; Centre for Economic Policy Research (CEPR)

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Date Written: January 2008

Abstract

We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is an optimal job search problem when the worker's labour market opportunities are initially uncertain. We distinguish between two interpretations of the model. In the first, a worker learns about common market conditions, such as the number of potential employers, that affect all searchers. In the second, the worker learns about her idiosyncratic productivity distribution across firms. For the first model, we show that learning leads to higher wage demands by the workers. In the second model, we give sufficient conditions so that learning leads to higher wage demands for optimistic workers and lower demands for pessimistic workers due to learning.

Keywords: Learning, stopping

JEL Classification: D83

Suggested Citation

Mason, Robin and Valimaki, Juuso, Learning and Smooth Stopping (January 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1140552

Robin Mason (Contact Author)

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3268 (Phone)
+44 23 8059 3858 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

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