| Robustness, Detection and the Price of Risk (2000) | |||||||||||||||
Abstract | |||||||||||||||
| This paper is about models with agents whose doubts about model specification cause them to value decision rules that perform well across a set of models. Agents fear difficult-to-detect misspecifications of the state transition law, difficult to detect because they are partly masked by the random shocks that impinge on the dynamical system. In response, agents adjust decision rules to guard against the modeling errors. This make more cautious decisions and put model uncertainty premia into equilibrium security market prices. | |||||||||||||||
Details der Publikation | |||||||||||||||
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