Simultaneous Search

17 Pages Posted: 20 Feb 2006

See all articles by Hector Chade

Hector Chade

Arizona State University (ASU) - Economics Department

Lones Smith

University of Wisconsin at Madison - Department of Economics

Date Written: January 2006

Abstract

We introduce and solve a new class of "downward-recursive" static portfolio choice problems. An individual simultaneously chooses among ranked stochastic options, and each choice is costly. In the motivational application, just one may be exercised from those that succeed. This often emerges in practice, such as when a student applies to many colleges.

We show that a greedy algorithm finds the optimal set. The optimal choices are "less aggressive" than the sequentially optimal ones, but "more aggressive" than the best singletons. The optimal set in general contains gaps. We provide a comparative static on the chosen set.

Keywords: Search, submodular, portfolio

JEL Classification: C61, D83, J64

Suggested Citation

Chade, Hector and Smith, Lones, Simultaneous Search (January 2006). Cowles Foundation Discussion Paper No. 1556, Available at SSRN: https://ssrn.com/abstract=556158

Hector Chade

Arizona State University (ASU) - Economics Department ( email )

PO Box 873806
Tempe, AZ 85287-3806
United States
480-965-3531 (Phone)
480-965-0748 (Fax)

Lones Smith (Contact Author)

University of Wisconsin at Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
United States
608-263-3871 (Phone)
608-262-2033 (Fax)

HOME PAGE: http://www.lonessmith.com

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