Mineral exploration as a game of chance

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

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mineral exploration, game theory, learning, simulation.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C44 - Operations Research ; Statistical Decision Theory; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q39 - Other

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