An experimental study of decisions in dynamic optimization problems

Charles Noussair, Kenneth Matheny

Research output: Contribution to journalArticlepeer-review

35 Scopus citations

Abstract

We study decisions of subjects who are given an incentive to solve dynamic optimization problems with the structure of a single-agent, one-sector, closed economy macroeconomic model. The decision task involves a sequence of choices of consumption and investment levels. Treatment variables consist of the initial endowment of capital stock, the production technology available to the economy, and the method of creating the structure of an infinite-horizon model. The study includes and contrasts data from both American and Japanese participants. We find that whether over-or underinvestment relative to the optimum occurs depends on the production technology, but not on the initial endowment of capital stock, nor the subject pool used, nor the method of implementing the infinite horizon. Sudden episodes of maximal consumption called binges, which are always suboptimal, are widely observed.

Original languageEnglish (US)
Pages (from-to)389-419
Number of pages31
JournalEconomic Theory
Volume15
Issue number2
DOIs
StatePublished - 2000
Externally publishedYes

Keywords

  • Consumption
  • Dynamic optimization
  • Experiment
  • Investment

ASJC Scopus subject areas

  • Economics and Econometrics

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