Switching cost models as hypothesis tests

Publication Type:
Journal Article
Citation:
Economics Letters, 2019, 175 pp. 32 - 35
Issue Date:
2019-02-01
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© 2018 Elsevier B.V. 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.
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