Robustness [Paperback]

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.

"Lars Peter Hansen, Co-Winner of the 2013 Nobel Prize in Economics""Thomas J. Sargent, Winner of the 2011 Nobel Prize in Economics"Lars Peter Hansenis the Homer J. Livingston Distinguished Service Professor in the Department of Economics at the University of Chicago.Thomas J. Sargentis professor of economics at New York University and senior fellow at the Hoover Institution. He is the author ofThe Conquest of American Inflationand the coauthor ofThe Big Problem of Small Change(both Princeton). 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 Best policies can be evaluated, in theory at least, given an economy. But macroeconomists have only model economies at their disposal and necessarily these economies are abstractions. A concern then is that the model economy used to evaluate policy willlÎ