An ambiguity averse decision maker evaluates plans under a restricted family of what we call structured models and unstructured alternatives that are statistically close to them. The structured models can include parametric models in which parameter values vary over time in ways that the decision maker cannot describe probabilistically. Because he suspects that all parametric models are misspecified, the decision maker also evaluates plans under alternative probability distributions with much less structure.

More Research From These Scholars

BFI Working Paper Jan 15, 2019

Twisted Probabilities, Uncertainty, and Prices

Lars Peter Hansen, Bálint Szőke, Lloyd Han, Thomas J. Sargent
Topics:  Monetary Policy, Fiscal Studies
BFI Working Paper Mar 13, 2019

A Framework for Studying the Monetary and Fiscal History of Latin America, 1960-2017

Timothy J. Kehoe, Juan Pablo Nicolini, Thomas J. Sargent
Topics:  Monetary Policy
BFI Working Paper Nov 29, 2017

The Price of Macroeconomic Uncertainty with Tenuous Beliefs

Lars Peter Hansen, Thomas J. Sargent
Topics:  Fiscal Studies