Robust Decision-Making under Risk and Ambiguity

Maximilian Blesch and Philipp Eisenhauer
Additional contact information
Maximilian Blesch: HU Berlin, DIW Berlin
Philipp Eisenhauer: Amazon

No 463, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model’s implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision problem to misspecification, and ultimately leads to post-decision disappointment. Using statistical decision theory, we develop a framework to explore, evaluate, and optimize robust decision rules that explicitly account for estimation uncertainty. We show how to operationalize our analysis by studying robust decisions in a stochastic dynamic investment model in which a decision-maker directly accounts for uncertainty in the model’s transition dynamics.

Keywords: decision-making under uncertainty; robust Markov decision process (search for similar items in EconPapers)
JEL-codes: C44 D25 D81 (search for similar items in EconPapers)
Date: 2023-11-22
New Economics Papers: this item is included in nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://rationality-and-competition.de/wp-content/ ... ussion_paper/463.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:463

Access Statistics for this paper

More papers in Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
Bibliographic data for series maintained by Viviana Lalli ().