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Learning and Smooth Stopping

Author

Listed:
  • Mason, Robin
  • Välimäki, Juuso
Abstract
We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is an optimal job search problem when the worker's labour market opportunities are initially uncertain. We distinguish between two interpretations of the model. In the first, a worker learns about common market conditions, such as the number of potential employers, that affect all searchers. In the second, the worker learns about her idiosyncratic productivity distribution across firms. For the first model, we show that learning leads to higher wage demands by the workers. In the second model, we give sufficient conditions so that learning leads to higher wage demands for optimistic workers and lower demands for pessimistic workers due to learning.

Suggested Citation

  • Mason, Robin & Välimäki, Juuso, 2008. "Learning and Smooth Stopping," CEPR Discussion Papers 6623, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6623
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    References listed on IDEAS

    as
    1. Gene M. Grossman & Carl Shapiro, 1986. "Optimal Dynamic R&D Programs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 581-593, Winter.
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    4. Smith, Lones, 1999. "Optimal job search in a changing world," Mathematical Social Sciences, Elsevier, vol. 38(1), pages 1-9, July.
    5. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter.
    6. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-1676, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Learning; Stopping;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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