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Dynamic Concern for Misspecification

Author

Listed:
  • Giacomo Lanzani

Abstract

I consider an agent who posits a set of probabilistic models for the payoff‐relevant outcomes. The agent has a prior over this set but fears the actual model is omitted and hedges against this possibility. The concern for misspecification is endogenous: If a model explains the previous observations well, the concern attenuates. I show that different static preferences under uncertainty (subjective expected utility, maxmin, robust control) arise in the long run, depending on how quickly the agent becomes unsatisfied with unexplained evidence. The misspecification concern's endogeneity naturally induces behavior cycles, and I characterize the limit action frequency. I apply the model to monetary policy cycles and choices in the face of complex tax schedules.

Suggested Citation

  • Giacomo Lanzani, 2025. "Dynamic Concern for Misspecification," Econometrica, Econometric Society, vol. 93(4), pages 1333-1370, July.
    • Handle: RePEc:wly:emetrp:v:93:y:2025:i:4:p:1333-1370
    DOI: 10.3982/ECTA22139
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    References listed on IDEAS

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    Cited by:

    1. Pietro Dindo & Filippo Massari, 2025. "Learning Models from Prices," Working Papers 2025: 17, Department of Economics, University of Venice "Ca' Foscari".
    2. Federico Echenique & Anqi Li, 2025. "Implicit Incentive Provision with Misspecified Learning," Papers 2512.01129, arXiv.org.
    3. He, Kevin & Libgober, Jonathan, 2025. "Misspecified learning and evolutionary stability," Journal of Economic Theory, Elsevier, vol. 230(C).
    4. Xinyu Dai & Daniel Chen & Yian Qian, 2026. "Dynamic Decision-Making under Model Misspecification: A Stochastic Stability Approach," Papers 2602.17086, arXiv.org.
    5. Florian Mudekereza, 2026. "Motivating Innovation with Misspecified Contracts," Papers 2602.18879, arXiv.org.
    6. Ignacio Esponda & Demian Pouzo, 2026. "Learning and Equilibrium under Model Misspecification," Papers 2601.09891, arXiv.org.
    7. Drew Fudenberg & Florian Mudekereza, 2026. "Complexity and Misspecification," Papers 2602.15674, arXiv.org.

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