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Adaptive partial policy innovation: coping with ambiguity through diversification

Authors: Charles F. Manski
Date: 22 April 2008
Type: cemmap Working Paper, CWP10/08
DOI: 10.1920/wp.cem.2008.1008

Abstract

This paper develops a broad theme about policy choice under ambiguity through study of a particular decision criterion. The broad theme is that, where feasible, choice between a status quo policy and an innovation is better framed as selection of a treatment allocation than as a binary decision. Study of the static minimax-regret criterion and its adaptive extension substantiate the theme. When the optimal policy is ambiguous, the static minimax-regret allocation always is fractional absent large fixed costs or deontological considerations. In dynamic choice problems, the adaptive minimax-regret criterion treats each cohort as well as possible, given the knowledge available at the time, and maximizes intertemporal learning about treatment response.

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