", Gilboa, Itzhak & Postlewaite, Andrew & Schmeidler, David, 2009. /Resources 78 0 R For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . (2020). The framework we propose is general and can be applied in many different fields of environmental economics. Econometrica 21(4), 503546 (1953), CrossRef ac[[n$69M,ZI$16&mGBOZ2L?d[6vO2 $k+RK!FH=)\-D'+o!el{y7s>(xO. Ideally, analysis should be robust to this type of uncertainty. << /CreationDate (D:20221031130800-00'00') 12 0 obj J Environ Econ Manag 63(3):304320, Aydogan I, Berger L, Bosetti V, Liu N (2018) Three layers of uncertainty and the role of model misspecification: an experiment. Uncertainty is introduced into several components of a simple pest management model. https://doi.org/10.1111/jeea.12164, Marschak J (1953) Economic measurements for policy and prediction. Biology suggests that, in ancestral settings, people were under selection to behave "as if" they were maximizing, in a . /Type /Page /Resources 68 0 R There are two major sources of uncertainty, "model uncertainty" and "parameter uncertainty" (Gillingham et al. /Contents 85 0 R ", Hill , Brian & Bradley , Richard & Helgeson, Casey, 2016. The third uses disagreement among economic forecasters as a proxy for uncertainty. Princeton University Press, Princeton (1955), Von Neumann, J., Morgenstern, O.: The Theory of Games and Economic Behavior. /CropBox [0.0 0.0 595.913 842.74] 44 0 obj 0000006316 00000 n >> DICE stands for Dynamic Integrated Climate and Economy (Nordhaus 1993; Nordhaus and Sztorc 2013). endobj 4 0 obj %PDF-1.4 % 68K subscribers in the rstats community. /Type /Page endstream /Parent 2 0 R 3.1 Introducing Model Uncertainty We focus on the model uncertainty due to a concern for model misspeci cation (robustness). /Rotate 0 It permits, inter alia, to abstract from model misspecification issues (a decision-theoretic attempt to model these issues is in Cerreia-Vioglio etal. Part of Springer Nature. Barros, D.J. endobj /Resources 110 0 R . We acknowledge audiences at the 23rd conference of the European Association of Environmental and Resource Economists and at the 6th World Congress of Environmental and Resource Economists for their helpful comments. >> See Arrow (1951), Hansen (2014), Marinacci (2015); and Hansen and Marinacci (2016) for a discussion, and Aydogan etal. dZwiyph#|nwq$ ,g!dVS'6J4Z14pIb %m|kZjBf D+iuB*lG ", Pierpaolo Battigalli & Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci, 2013. Many economic models augment this model with very strong assumptions about beliefs, such as an assumption of rational expectations or an assumption that there is a common prior in multiagent problems. 0000009211 00000 n Theor Decis 80(3):389409. << /H /I This working paper represents a rst draft of a chapter for a new Oxford Handbook on the Economics of ", Aydogan, Ilke & Berger, Loc & Bosetti, Valentina & Liu, Ning, 2018. /Type /Page Yale University Press, New Haven, Matthews HD, Gillett NP, Stott PA, Zickfeld K (2009) The proportionality of global warming to cumulative carbon emissions. /Contents 73 0 R << /Annots [42 0 R 43 0 R] Production and Demand Each firm has a Cobb-Douglas production function, F ( A, K D, K F) = A K D K F 1 - , (1) Google Scholar, Bohm, D.: Quantum Theory. In: Acemoglu D, Arellano M, Dekel E (eds) Advances in economics and econometrics: theory and applications, tenth world congress of the econometric society. Arrow KJ (1951) Alternative approaches to the theory of choice in risk-taking situations. >> Classical statistical theory assumes that only one (true) model is applied to a sample of data. 0000007970 00000 n 'Models in economics are marvellous helpers but indifferent masters. /CropBox [0.0 0.0 595.913 842.74] /MediaBox [0.0 0.0 595.913 842.74] ", Gilboa, Itzhak & Schmeidler, David, 1989. /Type /Page (2017). Then, they further select articles that discuss policy matters from this subset. 5) Methodological guidelines to integrate DMDU methods into climate policy design processes. It also allows you to accept potential citations to this item that we are uncertain about. J Clim 19(14):33373353, Ghirardato P, Maccheroni F, Marinacci M (2004) Differentiating ambiguity and ambiguity attitude. 0000008711 00000 n /Contents 111 0 R ", Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2009. Anyone you share the following link with will be able to read this content: Sorry, a shareable link is not currently available for this article. Subject-matter of choice under uncertainty 2. /MediaBox [0.0 0.0 595.913 842.74] >> /Resources 56 0 R In: 2014 annual meeting, Minneapolis, Minnesota, Agricultural and Applied Economics Association, p 169952, IPCC (2007) Climate change 2007: mitigation of climate change. This paper provides a summary of key elements of structural uncertainty describing why it matters and how it could be characterised. >> Our results are robust under different model settings. White]. /CropBox [0.0 0.0 595.913 842.74] Am Econ Rev 91(2):6066, Hansen LP, Sargent TJ (2007) Recursive robust estimation and control without commitment. 0000017982 00000 n /Resources 106 0 R Nature 530:407409, Wakker PP (2010) Prospect theory: for risk and ambiguity. endobj /Contents 65 0 R The reduction of uncertainty via better dissemination of information is thus recommended. ", Gilboa, Itzhak & Schmeidler, David, 1986. /Parent 2 0 R J Econ Behav Organ 132:518, Maccheroni F, Marinacci M, Rustichini A (2006) Ambiguity aversion, robustness, and the variational representation of preferences. Model performance uncertainty. /Parent 2 0 R >> The resulting reorganization of the network leads to less macroeconomic volatility, but at the cost of a decline in aggregate output. ", Ilke Aydogan & Loic Berger & Valentina Bosetti & Ning Liu, 2018. /MediaBox [0.0 0.0 595.913 842.74] Economic uncertainty could involve. >> For example, Ackerman and Stanton (2012) used the DICE model. All material on this site has been provided by the respective publishers and authors. 0000007445 00000 n In particular, we show how different concepts and methods of economic decision theory can be directly useful for problems in environmental economics. ", Thomas J. Sargent & LarsPeter Hansen, 2001. /Parent 2 0 R /CropBox [0.0 0.0 595.28 841.89] /Parent 2 0 R Is It Always Rational to Satisfy Savage's Axioms? /Contents 79 0 R /Rotate 0 Math. Clim Dyn 38(3):527546, Drouet L, Bosetti V, Tavoni M (2015) Selection of climate policies under the uncertainties in the fifth assessment report of the IPCC. 0000007610 00000 n ", Lars Peter Hansen & Thomas J Sargent, 2014. /Resources 66 0 R 0000004639 00000 n endobj /Rotate 0 /Contents 55 0 R Model Uncertainty in Economics Edited by Chris Papageorgiou, Mark Steel Volume 81, Pages 1-202 (January 2016) Download full issue Previous vol/issue Next vol/issue Receive an update when the latest issues in this journal are published Sign in to set up alerts Full text access Editorial Board Page IFC Download PDF "Robust Control and Model Uncertainty." American Economic Review, 91 (2): 60-66. In a dynamic setting, ex post observability becomes a key modelling issue (see Battigalli etal. >> ", Diederik Aerts & Emmanuel Haven & Sandro Sozzo, 2018. /CropBox [0.0 0.0 595.913 842.74] See general information about how to correct material in RePEc. 35 0 R 36 0 R 37 0 R 38 0 R 39 0 R] /Rotate 0 : Beyond traditional probabilistic methods in economics. Philos Sci 84(3):500522, Brock WA, Hansen LP (2018) Wrestling with uncertainty in climate economic models. 0000004881 00000 n /MediaBox [0.0 0.0 595.913 842.74] /Rotate 0 Downloadable! Dokken, K.J. ", Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. Environmental and Resource Economics ", Athanassoglou, Stergios & Xepapadeas, Anastasios, 2012. In some cases, enterprise fears uncertainty more than the policy itself, and this fear can impede innovation. Econ J 130:331355, Berger L, Emmerling J, Tavoni M (2017) Managing catastrophic climate risks under model uncertainty aversion. We review recent models of choices under uncertainty that have been proposed in the economic literature. J Polit Econ 122(5):945987, Hansen LP, Marinacci M (2016) Ambiguity aversion and model misspecification: an economic perspective. endobj The second reflects the number of federal tax code provisions set to expire in future years. 0000015122 00000 n 75(4), 643669 (1961), Etheridge, A.: A Course in Financial Calculus. /Parent 2 0 R 389 0 obj << /Linearized 1 /O 393 /H [ 2100 2539 ] /L 506854 /E 46941 /N 51 /T 498955 >> endobj xref 389 68 0000000016 00000 n ", Hansen, Lars Peter & Sargent, Thomas J., 2007. << Proc Nat Acad Sci 110(17):67546759, Cerreia-Vioglio S, Lars HP, Maccheroni F, Marinacci M (2020) Making decisions under model misspecification. (eds.) /Contents 67 0 R J Environ Econ Manag 81:7492, Convery FJ, Wagner G (2015) Managing uncertain climates: some guidance for policy makers and researchers. 1 0 obj /Im0 114 0 R Loc Berger. The main arguments are that an energy modelling exercise that is enriched with an uncertainty assessment which satisfies the requirements is (1) comprehensible in terms of its associated uncertainty and (2) should contribute to a complete understanding of energy scenarios, especially if they are used in decision support. >> 40 0 obj /CropBox [0.0 0.0 595.913 842.74] : Toward improving models for decision making in economics. /Contents 93 0 R ", Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed. Rider, London (2017), Dempster, A.: Upper and lower probabilities induced by a multivalued mapping. /Keywords >> ", Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. Model uncertainty is argued to have important positive and normative implications for macroeconomic analysis. /Contents 75 0 R It is shown that risk aversion leads to higher quantities of pesticides and to a decline in economic thresholds, implying higher frequency of applications. Springer, Cham (2019), Nguyen, H.T. J Public Econ Theory 14(2):221244 00066, Xepapadeas A, Yannacopoulos A (2017) Spatially structured deep uncertainty, robust control, and climate change policies. ", Antony Millner & Simon Dietz & Geoffrey Heal, 2013. J Eur Econ Assoc 13(6):10221100. /CropBox [0.0 0.0 595.913 842.74] Environ Resource Econ 77, 475501 (2020). J Econ Theory 136(1):127, Hansen LP, Sargent TJ (2008) Robustness. endobj 15 0 R 16 0 R 17 0 R 18 0 R 19 0 R 20 0 R 21 0 R 22 0 R 23 0 R 24 0 R 34 0 obj endobj 0000006553 00000 n /Contents 51 0 R Both damages and costs depend on the action taken (a represents the level of GHG emissions). /Rotate 0 ", Svenn Jensen & Christian P. Traeger & Christian Trger, 2021. . If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation. Ebi, Y.O. Abstract. /MediaBox [0.0 0.0 595.913 842.74] 100112. concerns about model misppecification, i.e., model uncertainty; both are cast in terms of a set or sets of probability distributions. In: Hood W, Koopmans TJ (eds) Studies in econometric method. >> Diversification 7. Image by Author. Model uncertainty refers to situations where a baseline model is missing dynamics found in the real world system. Princeton University Press, Princeton, Hansen J, Sato M, Ruedy R, Lo K, Lea DW, Medina-Elizade M (2006) Global temperature change. Model uncertainty is one of the most pervasive challenges in the social sciences. Houghton Mifflin, Boston, Koopmans TC (1947) Measurement without theory. >> endobj /Resources 74 0 R /Type /Page Appl. (2013); and Berger etal. /Type /Page /Parent 2 0 R J Math Econ 18(2):141154, Gilboa I, Postlewaite AW, Schmeidler D (2008) Probability and uncertainty in economic modeling. If a model is discovered to be correct, then we will change our behavior to reflect our new understanding of reality -- and when enough of us do so, the original model stops being correct. 0000008892 00000 n Learn more about Institutional subscriptions. 0000009263 00000 n ", Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2008. Banking 3(01), 119 (2019), Nguyen, H.T. 38, 325339 (1967), Diaconis, P., Skyrms, B.: Ten Great Ideas about Chance. Princeton University Press, Princeton (1944), Zadeh, L.A.: Fuzzy sets as a basis for a theory of possibility. >> IGIER working papers series, Bocconi University (WP623), Battigalli P, Francetich A, Lanzani G, Marinacci M (2019) Learning and self-confirming long-run biases. (Univ. Additionally, uncertainty is a factor in behavioural economics. Consider the two-period Real Business Cycle (RBC) model without uncertainty presented in the lecture slides (also Romer, 2019, ch.5), but with one modification. Rev Environ Econ Policy 7(2):219237, Pindyck RS (2015) The use and misuse of models for climate policy. 533541. /Parent 2 0 R /Rotate 0 We compare the performance of these uncertainty measures in forecasting three real variables with irreversibilitiesinvestment, hiring, and credit creationas well as in . /Resources 40 0 R . 0000004986 00000 n A model probabilizes uncertainty using analogies with canonical random mechanisms that serve as benchmark (Marinacci 2015,p. 1000). We review recent models of choices under uncertainty that have been proposed in the economic literature. ", Loic Berger & Massimo Marinacci, 2017. Is It Always Rational to Satisfy Savages Axioms? When uncertainty increases in the model, producers prefer to purchase from more stable suppliers, even though they might sell at higher prices. MathSciNet ", Robin Cubitt & Gijs van de Kuilen & Sujoy Mukerji, 2020. Mimeo, New York. If you have already trained simple neural networks yourself, the most intuitive thing to think about is the softmax output of your model, i.e., the percentage values you often see displayed as a result of the model's prediction. 6 0 obj Public profiles for Economics researchers, Curated articles & papers on economics topics, Upload your paper to be listed on RePEc and IDEAS, Pretend you are at the helm of an economics department, Data, research, apps & more from the St. Louis Fed, Initiative for open bibliographies in Economics, Have your institution's/publisher's output listed on RePEc. /Rotate 0 /Rotate 0 /Resources 54 0 R /MediaBox [0.0 0.0 595.913 842.74] Keywords Bayesian probability Belief functions . This paper is about a closer look at mathematical analysis of various types of uncertainty, in natural science as well as in social sciences, for econometricians. The contributions of Bill Poole have helped refine our understanding of how to conduct policy in an uncertain environment. Bilir, M. Chatterjee, K.L. /Rotate 0 /MediaBox [0.0 0.0 595.913 842.74] 10 0 obj In the past 20 years, measures of economic uncertainty have been developed that are purely market price based; structural model based, using data on real fundamentals and asset prices; text based; or survey based. We discuss some two-stage static decision criteria proposed in the literature that address state uncertainty in the first stage and model uncertainty in the second (by considering subjective probabilities over models). /Type /Page /Parent 2 0 R The damage function presented in Eq. To illustrate, we provide a simple application in the context of an optimal mitigation policy under climate change. /Type /Page 29 0 obj << & Lanzani, G. & Marinacci, M., 2019. /Contents 99 0 R While the variation in price-dividend ratios and the equity risk premium is primarily driven by risk aversion, uncertainty plays a large role in the term structure and is the driver of countercyclical . Economic uncertainty implies the future outlook for the economy is unpredictable. 2022 Springer Nature Switzerland AG. (2021). Bantam Books, London (2010), Kahneman, D., Tversky, A.: Prospect theory: an analysis of decision under risk. 37 0 obj 18 0 obj >> 0000007178 00000 n Anal. 0000001711 00000 n On the other hand, economic uncertainty is a weighted index of consumers, producers, forecasters, and economic policy uncertainty indices in a dynamic factor model framework. /CropBox [0.0 0.0 595.913 842.74] We took Chinese A-share listed companies from 2010 to 2018 as the research sample and studied the impact of economic policy uncertainty (EPU) on green technology innovation (GTI). Risk and Economics. /Rect [136.663 237.241 458.612 257.699] 9 0 obj 42 0 obj /MediaBox [0.0 0.0 595.913 842.74] ", Ilke Aydogan & Lo?c Berger & Valentina Bosetti & Ning Liu, 2018. /Rotate 0 (eds.) >> Estrada, R.C. 0000012474 00000 n J Econ Theory 146(4):12751330, Cerreia-Vioglio S, Maccheroni F, Marinacci M, Montrucchio L (2013) Classical subjective expected utility. In their own analysis, which was based on a 2018 working paper they wrote, the authors examined . /Contents 81 0 R Chatfield, C. [1995] Model uncertainty, data mining and statistical inference, Journal . Beyond Traditional Probabilistics Methods in Economics, pp. << We provide a general discussion of the relationship between macroeconomic models. 0000006096 00000 n /CropBox [0.0 0.0 595.913 842.74] The treatment of uncertainty in the business classroom has been dominated by the application of risk theory to the utility-maximization framework. /MediaBox [0.0 0.0 595.913 842.74] /Type /Page << 0000006743 00000 n 0000019141 00000 n The Economic Policy Uncertainty Index is comprised of three components. ", Robert M. Anderson & Haosui Duanmu & Aniruddha Ghosh & M. Ali Khan, 2022. Knight argued that uncertainty in this sense of unmeasurable uncertainty is more common in economic decision making. The unanimity criterion (13) is based on the general form of Bewleys (2002) model studied by Gilboa etal. ", Pierpaolo Battigalli & Alejandro Francetich & Giacomo Lanzani & Massimo Marinacci, 2016. the various RePEc services. /Parent 2 0 R PubMedGoogle Scholar. in this case, uncertainty can be decomposed into distinct layers: (i) aleatory or physical uncertainty ( risk ), (ii) model uncertainty or model ambiguity, and (iii) model misspecification. /Type /Page His model therefore serves as a natural starting point for our analysis of uncertainty shocks. ", Berger, Loc & Bosetti, Valentina, 2020. 0000001949 00000 n For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). Theor Econ 11(2):523545, Cerreia-Vioglio S, Maccheroni F, Marinacci M, Montrucchio L (2011) Uncertainty averse preferences. (2009). /MediaBox [0.0 0.0 595.913 842.74]
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