Discrete Adjustment to a Changing Environment : Experimental Evidence ∗

  title={Discrete Adjustment to a Changing Environment : Experimental Evidence ∗},
  author={Mel Win Khaw and Luminita Stevens},
We conduct a laboratory experiment to shed light on the cognitive limitations that may affect the way decision makers respond to changes in their economic environment. The subjects solve a tracking problem: they estimate the probability of drawing a green ring out of a box with green and red rings, which changes stochastically. The subjects draw rings from the box and indicate their draw-by-draw estimate. Our subjects depart from the optimal Bayesian benchmark in systematic ways, but these… CONTINUE READING
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