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Can someone explain optimal stopping? Algorithms to Live By
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So you are selling your house.

Your house is on the market for 100 dollars

the cost per month of owning is 1

comparables go for 90 to 105

the authors say if waiting costs half or more our expected range of offers there is no advantage to holding out

Apparently there is a means of determining the optimal price, I fear that the mathmatics involved is way beyond me how do you calculate the optimal price?

they say it applies to recruitment, getting married etc I understood the other examples I did not understand how they figured out the prices they proposed
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Re: Can someone explain optimal stopping? Algorithms to Live By [Andrewmc] [ In reply to ]
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Interesting theory, and thanks for posting the question. The math is past me as well (never did like it past Partial Differential Equations) but it seems like the theory makes sense. I wonder if this is something that people learn over time through experience and start to chalk it up to "gut reaction" like Malcom Gladwells' "Blink."

In terms of the house sale, it appears more scientific and specific than simply selecting a bottom line number you are willing to accept and selling once you get above that number. But, at some point in time, the analytics and waiting is outweighed by the need to simply sell the house and move on, so I would bet that many people leave money on the table when they are selling their house (or buying a car, dating, renting an apartment, or the many other scenarios various article propose for the theory).

drn92
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Post deleted by Francois [ In reply to ]
Re: Can someone explain optimal stopping? Algorithms to Live By [Francois] [ In reply to ]
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Possibly the easiest way to figure it out is using a variant of the economic order quantity calculation. The rub is figuring out how quickly the houses (inventory available) is selling. In all likely hood the correct equation probably already exists, it's just a matter of finding it.
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Post deleted by Francois [ In reply to ]
Re: Can someone explain optimal stopping? Algorithms to Live By [racin_rusty] [ In reply to ]
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So I remembered relatively well.

https://www.math.ucla.edu/~tom/Stopping/sr4.pdf

Theorem 1 is what Andrewmc is referring to, with actually relatively loose assumptions.
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Re: Can someone explain optimal stopping? Algorithms to Live By [Francois] [ In reply to ]
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its quite interesting but not particularly useful

it covers a large range of computer algorithms and their applications - it then stretches the bounds of applicability by explaining how they might apply to real life

now some of them are quite interesting - how computers sort information and how we arrange our lives e.g. book shelves or emails - is the time spent sorting them in to files / folders or alphabetical order worth it when it takes longer for your hands to physically sort the book than your eye to scan for it...

This was reassuring as I have never, in 20 years, ever sorted an email in to a file or folder - I've always found it faster to just search for whatever it was that i was looking for

some of it is really interesting simply because its not things I'd ever thought about, but its not helping with explaining how you would set an optimal stopping price on a house...........which I am interested in
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Re: Can someone explain optimal stopping? Algorithms to Live By [Francois] [ In reply to ]
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because your process is stationary.

Pretty sure the real estate market is not stationary. And pretty sure you know that too!

But the real question is how robust the model is with regards to the stationarity assumption. And it seems like most of the the time the answer is "not very".
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