Research Publication

April 2012 | Article

Small Noise Methods for Risk-Sensitive/Robust Economies

Evan W. Anderson, Lars Peter Hansen, Thomas J. Sargent

We provide small noise expansions for the value function and decision rule for the recursive risk-sensitive preferences specified by Hansen and Sargent (1995), Hansen et al. (1999), and Tallarini (2000). We use the expansions (1) to provide a fast method for approximating solutions of dynamic stochastic problems and (2) to quantify the effects on decisions of uncertainty and concerns about robustness to misspecification.

Journal: Journal of Economic Dynamics & Control|Volume: 36|Issue Number: 4|Pages: 468-500|Tags: Risk, Robustness and Ambiguity|Export BibTeX >
  title={Small Noise Methods for Risk-Sensitive/Robust economies},
  author={Anderson, Evan W. and Hansen, Lars Peter and Sargent, Thomas J.},
  journal={Journal of Economic Dynamics and Control},