Switching Cost Models as Hypothesis Tests
General Economics
2018-08-30 v1 Optimization and Control
Economics
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.
Cite
@article{arxiv.1808.09686,
title = {Switching Cost Models as Hypothesis Tests},
author = {Samuel N. Cohen and Timo Henckel and Gordon D. Menzies and Johannes Muhle-Karbe and Daniel J. Zizzo},
journal= {arXiv preprint arXiv:1808.09686},
year = {2018}
}