Information Flows And Networks I

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Altering Cost and Discount Parameters

Note: in order to run the simulation referred to in this slide, go here, to the Java Applet version. You will be directed to download the latest version of the Java plug-in.

Finally, we set up a slide that allows for the exploration of two environmental parameters: the discount factor and the cost of the second interview. Both of these parameters have been kept in the background of our discussion. Nonetheless, their influence on the manager's optimal strategy can be quite significant.

Try running the simulation with a reduced discount factor. You should discover that this tends to hurt the second manager, while having no effect whatsoever on the performance of the first. Low discount factor reduces the value of the second interview's outcome. This has a negative effect on the performance of the second manager, because she owes much of her success to the fact that she can bail to the second interview in case the first one turns out to be disastrous.

Increasing the cost of the second interview attempt lowers the risk-taking manager's performance for similar reasons. It makes the second interview less likely to be valuable, as compared to the first. As a result, the strategy that relies on a larger percentage of second-interview attempts loses out.

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