Student Faculty Macro Lunch - "Equilibrium in Misspecified Dynamic Models"

Presentation | November 19 | 12-1 p.m. | 597 Evans Hall

 Demian Pouzo, UCB

 Clausen Center

Abstract: We study where the agent does not know the transition probability function mapping current states and actions to future states. The agent has a prior belief over a set of possible transition functions and updates beliefs using Bayes' rule. We allow her to be misspecified in the sense that the true transition probability function is not in the support of her prior. This problem is relevant in many economic settings but is usually not amenable to analysis by the researcher. We make the problem tractable by studying asymptotic behavior. We propose an equilibrium notion and provide conditions under which it characterizes steady state behavior.

  RSVP  by November 15