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Learning about the arrival of sales

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  • Economics

Abstract

We analyse optimal stopping when the economic environment changes because of learning. A primary application is optimal selling of an asset when demand is uncertain. The seller learns about the arrival rate of buyers. As time passes without a sale, the seller becomes more pessimistic about the arrival rate. When the arrival of buyers is not observed, the rate at which the seller revises her beliefs is affected by the price she sets. Learning leads to a higher posted price by the seller. When the seller does observe the arrival of buyers, she sets an even higher price.

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