Research Publication

We use decision theory to confront uncertainty that is sufficiently broad to incorporate models as approximations. “We presume the existence of a featured collection of what we call structured models that have explicit substantive motivations. The decision maker confronts uncertainty through the lens of these models, but also views these models as simplifications, and hence, as misspecified. We extend the max-min analysis under model ambiguity to incorporate the uncertainty induced by acknowledging that the models used in decision-making are simplified approximations. Formally, we provide an axiomatic rationale for a decision criterion that incorporates model misspecification concerns. We then extend our analysis beyond the max-min case allowing for a more general criterion that encompasses a Bayesian formulation.

JEL codes- C54, D81

Online Appendix 

Published in the Review of Economic Studies 

This research received the Best Paper Award at the 1st MUSEES Conference, as presented by my co-author, Fabio Maccheroni. 

Acknowledgments:

First Draft: December 2019. We thank Attila Ambrus, Pierpaolo Battigalli, Benjamin Brooks, Tim Christensen, Roberto Corrao, Giacomo Lanzani, Marco Loseto, Philipp Sadowski, Todd Sarver, Jesse Shapiro as well as the audiences at Advances in Decision Analysis 2019, SAET 2019, Blue Collar Working Group 2.0, One World Mathematical Game Theory Seminar, RUD 2020, UCL-Osaka International Conference on the Mathematics for Risk and Decisions, MUSEES 2022, Confronting Uncertainty in Climate Change, Bicocca, Bilkent, Caltech, Duke, Georgetown, Glasgow, Harvard, Johns Hopkins, LSE, MIT, Oxford, Parma, UAB, UCL, Warwick for their very useful comments. We thank for the financial support the Alfred P. Sloan Foundation (grant G-2018-11113), the European Research Council (grants SDDM-TEA and INDIMACRO) and the Ministero dell’Universitàe della ricerca (grant 2017CY2NCA). This research was also supported in part by the Research Computing Center at the University of Chicago for providing computational resources.

@article{cerreia2020making,
  title={Making decisions under model misspecification},
  author={Cerreia-Vioglio, Simone and Hansen, Lars Peter and Maccheroni, Fabio and Marinacci, Massimo},
  journal={University of Chicago, Becker Friedman Institute for Economics Working Paper},
  number={2020-103},
  year={2020}
}