Rational Misspecification: Framework and Applications

Ran Eilat and Kfir Eliaz

No 20906, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper proposes a framework for assessing whether misspecified decision makers would be willing to pay for information that can potentially make them less misspecified. We introduce a prior-free approach, based on "constrained" maximal regret, to derive an upper bound on the subjective assessment of potential gains from acquiring a more accurate model. The constraint stems from the information currently available to the decision maker. We apply our approach to three prominent models of misspecified beliefs: coarse expectations, causal misperceptions and sampling equilibria.

Keywords: Regret; Model misspecification; Value of information (search for similar items in EconPapers)
JEL-codes: D83 D84 D90 (search for similar items in EconPapers)
Date: 2025-12
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