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Mineral exploration as a game of chance

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  • Bell, Peter N

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.

Suggested Citation

  • Bell, Peter N, 2015. "Mineral exploration as a game of chance," MPRA Paper 62159, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62159
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    References listed on IDEAS

    as
    1. David B. Brown & James E. Smith, 2013. "Optimal Sequential Exploration: Bandits, Clairvoyants, and Wildcats," Operations Research, INFORMS, vol. 61(3), pages 644-665, June.
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    7. Kenneth Hendricks & Dan Kovenock, 1989. "Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 164-182, Summer.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mineral exploration; game theory; learning; simulation.;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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