Research Publication

January 2017 | Reviews & Comments

Ambiguity Aversion and Model Misspecification: An Economic Perspective

Lars Peter Hansen, Massimo Marinacci

How to accommodate potential model misspecification is a challenging topic. On the one hand, if we have very precise information about the nature of the misspecification, then presumably we would fix or repair the model. On the other hand, if we allow for too large of a set of possible ways for a model to be misspecified, we may find that little can be said of value in confronting the decision problem. The interplay between tractability and conceptual appeal is a central consideration when producing tools that aid in statistical decision making. Our comment will describe other important advances in decision theory within the economics discipline that are designed to confront uncertainty conceived broadly to include an aversion to ambiguity and a concern about model misspecification. We will also delineate some special challenges for applications in the social sciences.

Journal: Statistical Science|Volume: 31|Pages: 511-515|Tags: Risk, Robustness and Ambiguity|Export BibTeX >
@article{hansenmarinacci:2016,
  title={Ambiguity Aversion and Model Misspecification: An Economic Perspective},
  author={Hansen, Lars Peter and Marinacci, Massimo},
  journal={Statistical Science},
  year={2016}
}