By applying robust control, the decision maker wants to make good decisions when his model is only a good approximation of the true one. Such decisions are said to be robust to model misspecification. In this paper it is shown that, in many situations relevant in economics, a decision maker applying robust control implicitly assumes that today’s worst-case adverse shock is serially uncorrelated with tomorrow’s worst-case adverse shock. Then, further investigation is needed to see how strong is the ‘immunization against uncertainty’ provided by these popular frameworks.
Tucci, M.P. (2021). How Robust is Robust Control in Discrete Time?. COMPUTATIONAL ECONOMICS, 58(2), 279-309 [10.1007/s10614-020-10027-z].
How Robust is Robust Control in Discrete Time?
Marco P. Tucci
2021-01-01
Abstract
By applying robust control, the decision maker wants to make good decisions when his model is only a good approximation of the true one. Such decisions are said to be robust to model misspecification. In this paper it is shown that, in many situations relevant in economics, a decision maker applying robust control implicitly assumes that today’s worst-case adverse shock is serially uncorrelated with tomorrow’s worst-case adverse shock. Then, further investigation is needed to see how strong is the ‘immunization against uncertainty’ provided by these popular frameworks.File | Dimensione | Formato | |
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https://hdl.handle.net/11365/1188483