Cognition and the Theory of Learning by Doing

37 Pages Posted: 11 Sep 2000

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: April 2000

Abstract

The standard model of utility maximization assumes that individuals make complete contingent plans before making a decision. This paper shows that when the environment is sufficiently complex the optimal rule entails learning by doing rather than contingent planning. An implication of this result is that spill-overs from learning by doing are less than perfect, a hypothesis central to many models of learning by doing, such as Rosen (1972). It is shown that one can derive learning curves that can be fitted to data. The model is also consistent with the observations of behavioral economics, such as Kahneman and Tversky (1979), that in the short run individuals may make biased decisions, though long run behavior is consistent with utility maximization. Finally, the model is applied to Becker (1968)'s deterrence model to show that the optimal amount of monitoring is bounded away from zero.

Keywords: Decision Theory, Learning by Doing, Incentives

Suggested Citation

MacLeod, William Bentley, Cognition and the Theory of Learning by Doing (April 2000). USC Law School, Olin Research Paper No. 00-11. Available at SSRN: https://ssrn.com/abstract=240506 or http://dx.doi.org/10.2139/ssrn.240506

William Bentley MacLeod (Contact Author)

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IZA Institute of Labor Economics ( email )

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