Paul Viefers, Philipp Strack
In this paper we examine behavior in an optimal stopping task. We derive novel theoretical predictions under different theories of dynamic behavior and then examine their empirical validity in the laboratory. We show that the well-known result that the optimal strategy for risk-neutral agents is a path-independent cut-off strategy can be generalized to the entire class of expected utility (EU) preferences as long as utility is increasing and concave. Furthermore, and perhaps more surprisingly, we show that cut-off strategies are also optimal under certain path-dependent preferences such as regret preferences. Our empirical analysis yields some important qualifications to results in the extant literature: Behavior over multiple rounds of the same optimal stopping task is hard to reconcile with agents playing cut-off strategies or even merely strategies that are Markov.
JEL-Classification: D03;D81;G11
Keywords: Optimal Stopping, Dynamic behavior, Regret
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