Making Decisions under Model Misspecification
Simone Cerreiaâ€ Vioglio (),
Fabio Maccheroni () and
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Simone Cerreiaâ€ Vioglio: UniversitÃ Bocconi - IGIER & Department of Decision Sciences
Fabio Maccheroni: UniversitÃ Bocconi - IGIER & Department of Decision Sciences
Authors registered in the RePEc Author Service: Simone Cerreia-Vioglio
No 2020-103, Working Papers from Becker Friedman Institute for Research In Economics
We use decision theory to confront uncertainty that is sufficiently broad to incorporate â€œmodels as approximations.â€ We presume the existence of a featured collection of what we call â€œstructured modelsâ€ 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.
Pages: 61 pages
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Working Paper: Making Decisions under Model Misspecification (2022)
Working Paper: Making Decisions under Model Misspecification (2020)
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