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Robustness
-
Language:
English
Published/Copyright:
2011
About this book
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.
Author / Editor information
Lars Peter Hansen is the Homer J. Livingston Distinguished Service Professor in the Department of Economics at the University of Chicago. Thomas J. Sargent is professor of economics at New York University and senior fellow at the Hoover Institution. He is the author of The Conquest of American Inflation and the coauthor of The Big Problem of Small Change (both Princeton).
Reviews
"The book is self-contained and rigorous and may be interesting not only for macroeconomists who seek to improve the robustness of decision making process but also for control engineers interested in different applications of their professional abilities."---A. Swierniak, Zentralblatt MATH
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"Thomas J. Sargent, Winner of the 2011 Nobel Prize in Economics"
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"Lars Peter Hansen, Co-Winner of the 2013 Nobel Prize in Economics"
Topics
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Frontmatter
i -
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Contents
vii -
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Preface
xv -
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Acknowledgments
xvii - Part I: Motivation and main ideas
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1. Introduction
3 -
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2. Basic ideas and methods
25 -
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3. A stochastic formulation
53 - Part II: Standard control and filtering
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4. Linear control theory
67 -
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5. The Kalman filter
103 - Part III: Robust control
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6. Static multiplier and constraint games
119 -
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7. Time domain games for attaining robustness
139 -
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8. Frequency domain games and criteria for robustness
173 -
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9. Calibrating misspecification fears with detection error probabilities
213 -
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10. A permanent income model
223 - Part IV: Multi-agent problems
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11. Competitive equilibria without robustness
253 -
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12. Competitive equilibria with robustness
271 -
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13. Asset pricing
295 -
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14. Risk sensitivity, model uncertainty, and asset pricing
307 -
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15. Markov perfect equilibria with robustness
327 -
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16. Robustness in forward-looking models
333 - Part V: Robust estimation and filtering
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17. Robust filtering with commitment
359 -
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18. Robust filtering without commitment
383 - Part VI: Extensions
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19. Alternative approaches
403 -
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References
413 -
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Index
427
Publishing information
Pages and Images/Illustrations in book
eBook published on:
August 22, 2016
eBook ISBN:
9781400829385
Edition:
Course Book
Pages and Images/Illustrations in book
eBook ISBN:
9781400829385
Keywords for this book
Decision rule; Decision-making; Probability; Best; worst and average case; Rational expectations; Parameter; Detection; Preference (economics); Linear regulator; Bellman equation; Bayesian; Control theory; Loss function; Robust control; Optimal control; State variable; Frequency domain; Eigenvalues and eigenvectors; Precautionary savings; Observational equivalence; Uncertainty; Economic equilibrium; Conditional expectation; Markov perfect equilibrium; Dynamic programming; Covariance matrix; Robustness; Stochastic discount factor; Kalman filter; Riccati equation; Calculation; Probability distribution; Shadow price; Kullback–Leibler divergence; Risk aversion; Free parameter; Representative agent; Invariant subspace; Markov chain; Big O notation; Marginal rate of substitution; Permanent income hypothesis; Estimation; Estimation theory; Lagrange multiplier; Expected utility hypothesis; Ramsey problem; Ambiguity aversion; Partial equilibrium; Dummy variable (statistics); Mathematical optimization; Discrete time and continuous time; Stochastic process; Decision problem; Macroeconomics; Competitive equilibrium; Utility; Normal distribution; Lucas critique; Autocorrelation; Theorem; Trend stationary; Order condition; Hyperbolic discounting; Algebraic Riccati equation; Linear least squares (mathematics); Sylvester equation; Stochastic control; Markov process; Unit root test
Audience(s) for this book
For an expert adult audience, including professional development and academic research
