Switching cost models as hypothesis tests

Vol: 
40/2018
Author name: 
Cohen SN
Henckel T
Menzies GD
Muhle-Karbe J
Zizzo DJ
Year: 
2018
Month: 
September
Abstract: 

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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