The Wald Problem and the Relation of Sequential Sampling and Ex-Ante Information Costs
27 Pages Posted: 23 Jun 2017 Last revised: 21 Feb 2019
Date Written: February 18, 2019
We consider the two state sequential sampling problem of Wald (1945). We show that any distribution of posteriors can be attained and that the ex-ante cost of attaining any probability distribution over posteriors equals the expected change of the log likelihood ratio. With many states, not all distributions can be attained but we provide a characterization of those that can be attained and show that the characterization of ex-ante cost generalizes naturally to those that can be attained.
Keywords: Sequential Sampling, Entropy Cost, Information Acquisition
JEL Classification: D83, C1
Suggested Citation: Suggested Citation