An Experimental Study of Decisions in Dynamic Optimization Problems.

Abstract

In this paper we use an experimental approach to study the decisions of human subjects who are given cash incentives to solve a particular representative agent dynamic model widely studied in macroeconomics. In a representative agent dynamic model, an economy is modelled as a single decision maker, who maximizes the discounted utility of consumption over the appropriate time horizon. The assupmtion of a single decision maker in the economy removes complications resulting from the existence of multiple agents, such as inefficiencies resulting from strategic behavior or externalities, and technical difficulties arising from the aggregation of preferences.OPTIMIZATION ; DECISION MAKING ; MACROECONOMICS