Download This PaperSwitching Cost Models as Hypothesis Tests
14 Pages Posted: 14 Sep 2018
Date Written: September 6, 2018
Abstract
We relate models based on costs of switching beliefs (e.g. due to inattention) to hypothesis tests. Specifically, for an inference problem with a penalty for mistakes and for switching the inferred value, a band of inaction is optimal. We show this band is equivalent to a confidence interval, and therefore to a two-sided hypothesis test.
Keywords: Inference, switching cost, inferential expectations, hypothesis test.
JEL Classification: D01, D81, D84
Suggested Citation: Suggested Citation
Cohen, Samuel N. and Henckel, Timo and Menzies, Gordon Douglas and Muhle-Karbe, Johannes and Zizzo, Daniel John, Switching Cost Models as Hypothesis Tests (September 6, 2018). CAMA Working Paper No. 40/2018, Available at SSRN: https://ssrn.com/abstract=3245004 or http://dx.doi.org/10.2139/ssrn.3245004
Timo Henckel (Contact Author)
Australian National University (Centre for Applied Macroeconomic Analysis) ( email )
Canberra ACT 0200
Australia
+61-2-61255540 (Phone)
+61-2-61255570 (Fax)
HOME PAGE: http://apseg.anu.edu.au/staff/thenckel.php
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