On the relation between robust and Bayesian decision making
This paper compares Bayesian decision theory with robust decision theory where the decision maker optimizes with respect to the worst state realization. For a class of robust decision problems there exists a sequence of Bayesian decision problems whose solution converges towards the robust solution. It is shown that the limiting Bayesian problem displays infinite risk aversion and that decisions are insensitive (robust) to the precise assignment of prior probabilities. This holds independent from whether the preference for robustness is global or restricted to local perturbations around some reference model.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Chamberlain, 2000. "Econometric applications of maxmin expected utility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 625-644.
- Alexei Onatski & James H. Stock, 2000.
"Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy,"
NBER Working Papers
7490, National Bureau of Economic Research, Inc.
- Alexei Onatski & James H. Stock, 1999. "Robust monetary policy under model uncertainty in a small model of the U.S. economy," Proceedings, Federal Reserve Bank of San Francisco.
- Onatski, Alexei & Stock, James H., 2002. "Robust Monetary Policy Under Model Uncertainty In A Small Model Of The U.S. Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 85-110, February.
- Lars Hansen & Thomas Sargent & Thomas Tallarini, .
"Robust Permanent Income and Pricing,"
GSIA Working Papers
1997-51, Carnegie Mellon University, Tepper School of Business.
- Peter von zur Muehlen, 2001. "Activist vs. non-activist monetary policy: optimal rules under extreme uncertainty," Finance and Economics Discussion Series 2001-02, Board of Governors of the Federal Reserve System (U.S.).
- Robert J. Tetlow & Peter von zur Muehlen, 2000.
"Robust monetary policy with misspecified models: does model uncertainty always call for attenuated policy?,"
Finance and Economics Discussion Series
2000-28, Board of Governors of the Federal Reserve System (U.S.).
- J. Tetlow, Robert & von zur Muehlen, Peter, 2001. "Robust monetary policy with misspecified models: Does model uncertainty always call for attenuated policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 911-949, June.
- Frederick van der Ploeg, 1993. "A Closed-form Solution for a Model of Precautionary Saving," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 385-395.
- Gilboa, Itzhak & Schmeidler, David, 1989.
"Maxmin expected utility with non-unique prior,"
Journal of Mathematical Economics,
Elsevier, vol. 18(2), pages 141-153, April.
- Duffie, Darrell & Epstein, Larry G, 1992. "Asset Pricing with Stochastic Differential Utility," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 411-36.
- Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
- Alexei Onatski, 2000. "Minimax Analysis of Monetary Policy Under Model Uncertainty," Econometric Society World Congress 2000 Contributed Papers 1818, Econometric Society.
- Duffie, Darrell & Epstein, Larry G, 1992. "Stochastic Differential Utility," Econometrica, Econometric Society, vol. 60(2), pages 353-94, March.
- Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
- Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, March.
- Duffie, Darrel & Lions, Pierre-Louis, 1992. "PDE solutions of stochastic differential utility," Journal of Mathematical Economics, Elsevier, vol. 21(6), pages 577-606.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:28:y:2004:i:10:p:2105-2117. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.