Planning Costs and the Theory of Learning by Doing
34 Pages Posted: 21 Jul 2003
Date Written: June 2003
This paper illustrates how the explicit introduction of planning costs into a model of decision making under uncertainty can result is a theory of learning by doing that is empirically implementable. Even when not optimal, it is shown that learning by doing results in convergence to optimal choice under very general conditions. Hence, it may explain why learning by doing (or adaptive learning) is a good first order model of behavior for a wide variety of environments.
Keywords: Decision Theory, Learning by Doing, Contingent Plans, Status Quo Effects, Incomplete Contracts, Behavioral Economics
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