Global and Approximate Global Optimality of Myopic Economic Decisions

In actual problem contexts, the time horizon over which plans are formulated must generally be short in relation to the history of the process as a whole. What loss of return is entailed by the use of these relatively short planning horizons? This article develops a general discrete-time dynamic stochastic control model that encompasses many well-known economic models. It derives sufficient conditions in this context for the equivalence of myopic (single period) and global (simultaneous multiple period) expected return maximization, and it provides a bound for the loss in global return when these conditions are not met. It also identifies properties of proxy short-horizon return functions which can be used to partially order them in terms of overall expected return performance. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/dehome.htm