fbpx Robust Decision Theory and Econometrics | Harvard Kennedy School

Additional Authors:

  • Gary Chamberlain


Robust Decision Theory and Econometrics. Gary Chamberlain, 2019, Paper, "Subjective expected utility can provide normative guidance to an investor making a portfolio choice. The investor, however, may have doubts on the specification of the distribution. The investor may, at some cost, be able to reduce these doubts by working on a more careful specification of the model. Or he may seek a decision theory that is less sensitive to the specification. I consider three such theories: maxmin expected utility, multiplier preferences, and smooth ambiguity preferences. A simple two-period model is used to illustrate their application. The model is rich enough to exhibit connections between atemporal preferences over contingent plans and recursive (conditional) preferences, and to draw attention to limitations of recursive preferences in some cases. In addition to portfolio choice, the paper discusses connections between robust decision theory and point estimation in misspecified models." Link