Approximate optimality and the risk/reward tradeoff in a class of bandit problems

• Tác giả: Zengjing Chen, Larry G Epstein, Guodong Zhang
• Ngôn ngữ: eng
• Ký hiệu phân loại: 511.4 Approximations formerly also 513.24 and expansions
• Thông tin xuất bản: 2022
• Bộ sưu tập: Báo, Tạp chí
• ID: 195930

Tóm tắt

This paper studies a sequential decision problem where payoff distributions are known and where the riskiness of payoffs matters. Equivalently, it studies sequential choice from a repeated set of independent lotteries. The decision-maker is assumed to pursue strategies that are approximately optimal for large horizons. By exploiting the tractability afforded by asymptotics, conditions are derived characterizing when specialization in one action or lottery throughout is asymptotically optimal and when optimality requires intertemporal diversification. The key is the constancy or variability of risk attitude. The main technical tool is a new central limit theorem.