Research Publication

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.

@article{ahs:2012small,
  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},
  volume={36},
  number={4},
  pages={468--500},
  year={2012},
  publisher={Elsevier}
}