Recursive robust estimation and control without commitment

@article{Hansen2007RecursiveRE,
  title={Recursive robust estimation and control without commitment},
  author={Lars Peter Hansen and Thomas J. Sargent},
  journal={J. Economic Theory},
  year={2007},
  volume={136},
  pages={1-27}
}
In a Markov decision problem with hidden state variables, a posterior distribution serves as a state variable and Bayes’ law under an approximating model gives its law of motion. A decision maker expresses fear that his model is misspecified by surrounding it with a set of alternatives that are nearby as measured by their expected log likelihood ratios (entropies). Sets of martingales represent alternative models. A decision maker constructs a sequence of robust decision rules by pretending… CONTINUE READING
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