Robustness

✍ Scribed by Lars Peter Hansen; Thomas J. Sargent

• Publisher: Princeton University Press
• Year: 2011
• Tongue: English
• Leaves: 453
• Edition: Course Book
• Category: Library

✦ Synopsis

The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted?

Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics.

Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.

✦ Table of Contents

Contents
Preface
Acknowledgments
Part I: Motivation and main ideas
1. Introduction
2. Basic ideas and methods
3. A stochastic formulation
Part II: Standard control and filtering
4. Linear control theory
5. The Kalman filter
Part III: Robust control
6. Static multiplier and constraint games
7. Time domain games for attaining robustness
8. Frequency domain games and criteria for robustness
9. Calibrating misspecification fears with detection error probabilities
10. A permanent income model
Part IV: Multi-agent problems
11. Competitive equilibria without robustness
12. Competitive equilibria with robustness
13. Asset pricing
14. Risk sensitivity, model uncertainty, and asset pricing
15. Markov perfect equilibria with robustness
16. Robustness in forward-looking models
Part V: Robust estimation and filtering
17. Robust filtering with commitment
18. Robust filtering without commitment
Part VI: Extensions
19. Alternative approaches
References
Index