Dynamic Choice of Information Sources

Abstract

The state of the world has two (possibly correlated) binary components, (theta_1,theta_2), theta_i belongs to {0,1}. An agent can search for conclusive evidence of theta_i=1. The model is dynamic with endogenous stopping time. No matter what the actions are (the agent chooses from these actions when he stops the search) and no matter what the payoffs from these actions are in different states, any optimal strategy consists of two phases. In a special case when theta_1+theta_2<=1, the agent searches in the most promising direction during the first phase (possibly changing the direction as the search progresses) and completely ignores one of the state components during the second phase. Applying the result, I show (1) how the availability of sources for collecting information resolves disagreement between groups with opposed interests, and (2) what a policy maker can achieve when an expert is restricted to report the state.

Keywords: optimal learning, sequential optimal experimental design, Poisson process, limited attention

JEL Classification: D83