On Risk and Time Pressure: When to Think and When to Do

41 Pages Posted: 6 Dec 2019 Last revised: 19 Nov 2020

See all articles by Johannes Schneider

Johannes Schneider

Universidad Carlos III de Madrid

Christoph Wolf

Bocconi University

Date Written: November 12, 2020

Abstract

We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. The agent dynamically allocates effort to implementing a known yet risky method or developing a new, less risky method. The time remaining to implement a new method determines the value of the agent's discovery. Under the optimal policy, the agent may switch from implementing the old to developing a new and back to implementing the old method. Successful development of new methods is most likely if the time horizon is intermediate. The results differ qualitatively if new approaches are developed through lean techniques.

Keywords: dynamic problem solving, endogenous bandits, lean techniques, time pressure

JEL Classification: D01, D83, O31

Suggested Citation

Schneider, Johannes and Wolf, Christoph, On Risk and Time Pressure: When to Think and When to Do (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3490935 or http://dx.doi.org/10.2139/ssrn.3490935

Johannes Schneider

Universidad Carlos III de Madrid ( email )

Christoph Wolf (Contact Author)

Bocconi University

Milan, MI 20136
Italy

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