Small noise methods for risk-sensitive/robust economies

Evan W. Anderson, Lars Peter Hansen, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    We provide small noise expansions for the value function and decision rule for the recursive risk-sensitive preferences specified by Hansen and Sargent (1995), Hansen et al. (1999), and Tallarini (2000). We use the expansions (1) to provide a fast method for approximating solutions of dynamic stochastic problems and (2) to quantify the effects on decisions of uncertainty and concerns about robustness to misspecification.

    Original languageEnglish (US)
    Pages (from-to)468-500
    Number of pages33
    JournalJournal of Economic Dynamics and Control
    Volume36
    Issue number4
    DOIs
    StatePublished - Apr 2012

    Fingerprint

    Misspecification
    Stochastic Dynamics
    Decision Rules
    Value Function
    Quantify
    Robustness
    Uncertainty
    Risk preferences
    Decision rules
    Stochastic dynamics
    Value function

    Keywords

    • Computational economics
    • Perturbation methods
    • Recursive utility
    • Stochastic growth model

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Control and Optimization
    • Applied Mathematics

    Cite this

    Small noise methods for risk-sensitive/robust economies. / Anderson, Evan W.; Hansen, Lars Peter; Sargent, Thomas.

    In: Journal of Economic Dynamics and Control, Vol. 36, No. 4, 04.2012, p. 468-500.

    Research output: Contribution to journalArticle

    Anderson, Evan W. ; Hansen, Lars Peter ; Sargent, Thomas. / Small noise methods for risk-sensitive/robust economies. In: Journal of Economic Dynamics and Control. 2012 ; Vol. 36, No. 4. pp. 468-500.
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