42: Switching Cost Models as Hypothesis Tests
Author(s): Cohen, Saumuel N. University of Oxford, Henckel, Timo, Australian National University, Menzies, Gordon D. University of Technology, Muhle-Karbe, Johannes, Carnegie Mellon University and Daniel J. Zizzo, Newcastle University
Date of publication: 2018
Working paper number: 42
Abstract :Models based on costs of switching beliefs, for example, due to inat-tention, are related to hypothesis tests and vice versa. Specifically, for aninference problem with a penalty for mistakes and for switching the in-ferred 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.