Munich Personal RePEc Archive

Mineral exploration as a game of chance

Bell, Peter N (2015): Mineral exploration as a game of chance.

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Exploration is a costly activity that helps a business improve their understanding of a potential mineral deposit. Yet, even with strong exploration results, the business faces uncertainty over the value of the mine. I model this situation as a game of chance. The game starts by giving an agent an asset with random value and ends when the agent chooses to accept the random value or reject it and receive zero instead. The agent can pay to learn more about the asset’s value as many times as they like before they end the game, but no amount of exploration will remove all uncertainty. I provide a decision rule for the agent based on an interval estimate for the asset value and analyze performance of the decision rule in a simulation experiment.

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