An Introduction to Search Theory

Stigler, George (1961) “The Economics of Information” Journal of Political Economy 69:3 213-225.

Original Question:

Suppose prices are distributed according to a density \(f(p)\) and you want to find the lowest price. Each draw costs \(c\). If draws are independent how large a sample should you select?
_images/stigler_search.png

Static formulation misses the recursive nature of the problem

  • It lacks the time element essential to most search
  • Why decide in advance how many times to search?
  • What if I find the lowest price on my first drawing?