Dynamic Programming and Markov Decision Processes
A great many problems in economics can be reduced to determining the maximum of a given function. Dynamic programming is one of a number of mathematical optimization techniques applicable in such problems. As will be illustrated, the dynamic programming technique or viewpoint is particularly useful in complex optimization problems with many variables in which time plays a crucial role. Unlike calculus-based techniques it does not require the function being optimized to be differentiable in the (decision) variables.
KeywordsDynamic Programming Optimal Policy Markov Decision Process Labour Income Constant Relative Risk Aversion
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