Switching cost models as hypothesis tests

Samuel N. Cohen; Timo Henckel; Gordon D. Menzies; Johannes Muhle-Karbe; Daniel J. Zizzo

doi:10.1016/j.econlet.2018.11.014

Switching cost models as hypothesis tests

Samuel N. Cohen, Timo Henckel, Gordon D. Menzies^*, Johannes Muhle-Karbe, Daniel J. Zizzo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

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.

Original language	English
Pages (from-to)	32-35
Number of pages	4
Journal	Economics Letters
Volume	175
DOIs	https://doi.org/10.1016/j.econlet.2018.11.014
Publication status	Published - Feb 2019

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10.1016/j.econlet.2018.11.014

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title = "Switching cost models as hypothesis tests",

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.",

keywords = "Hypothesis test, Inference, Inferential expectations, Switching cost",

author = "Cohen, {Samuel N.} and Timo Henckel and Menzies, {Gordon D.} and Johannes Muhle-Karbe and Zizzo, {Daniel J.}",

note = "Publisher Copyright: {\textcopyright} 2018 Elsevier B.V.",

year = "2019",

month = feb,

doi = "10.1016/j.econlet.2018.11.014",

language = "English",

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AU - Cohen, Samuel N.

AU - Henckel, Timo

AU - Menzies, Gordon D.

AU - Muhle-Karbe, Johannes

AU - Zizzo, Daniel J.

PY - 2019/2

Y1 - 2019/2

N2 - 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.

AB - 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.

KW - Hypothesis test

KW - Inference

KW - Inferential expectations

KW - Switching cost

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U2 - 10.1016/j.econlet.2018.11.014

DO - 10.1016/j.econlet.2018.11.014

M3 - Article

SN - 0165-1765

VL - 175

SP - 32

EP - 35

JO - Economics Letters

JF - Economics Letters

ER -

Switching cost models as hypothesis tests

Abstract

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