8 Pages Posted: 23 Jun 2017
Date Written: June 20, 2017
We consider the sequential sampling problem of Wald (1945). The static cost of attaining any experiment is equal to the expectation of the log likelihood ratio. This equivalence between sequential sampling generalizes to settings where the flow cost depends on the current posterior. The induced cost of any sampling strategy can be represented as a posterior separable cost function. Conversely any posterior separable cost function corresponds to some sequential sampling model with posterior dependent flow cost. As a special case we obtain that Entropy cost (Sims, 2010) corresponds to a flow cost which vanishes when the agent is close to certain about the state.
Keywords: Sequential Sampling, Entropy Cost, Information Acquisition
JEL Classification: D83, C1
Suggested Citation: Suggested Citation
Morris, Stephen and Strack, Philipp, The Wald Problem and the Equivalence of Sequential Sampling and Static Information Costs (June 20, 2017). Available at SSRN: https://ssrn.com/abstract=2991567