The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.

Lars Peter Hansen is an economist at the University of Chicago. He was born in 1952 in Champaign, Illinois. After graduating from Utah State University (B.S. Mathematics, 1974) and the University of Minnesota (Ph.D. Economics, 1978) he served as assistant professor at Carnegie Mellon University before moving to University of Chicago in 1981. He is the co-winner of the Frisch Medal with Kenneth Singleton in 1984 and was awarded the Erwin Plein Nemmers Prize in Economics in 2006.

Hansen is best known as the developer of the econometric technique GMM or Generalized method of moments and has written and co-authored papers applying GMM to analyze economic models in numerous fields including labor economics, international finance, finance and macroeconomics. He has written books with Thomas J. Sargent and is the co-editor of "Advances in Economics and Econometrics," and the "Handbook of Financial Econometrics." His current research interests include pricing long run macroeconomic risk, and incorporating beliefs, doubts and learning into representative agent models and developing implications for empirical macroeconomics and finance.

He is among other things also known for, together with Ravi Jagannathan to derive the Hansen-Jagannathan bounds which provides a way to use security market data to restrict the volatility of the stochastic discount factor.

[edit] Selected Writings

Generalized Methods of Moments: A Time Series Perspective, in International Encyclopedia of the Social and Behavior Sciences, 2000

Hansen, L.P., (1982), Large Sample Properties of the Generalized Methods of Moments in Econometrica, Vol. 50, page 1029-1054, where he proposed the GMM-procedure.

Hansen, Lars P., and Ravi Jagannathan (1991): "Implications of Security Market Data for Models of Dynamic Economies", Journal of Political Economy, 99 225-262.

Hansen, Lars Peter and Kenneth J. Singleton, "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86. 1982.

Hansen, L.P., Hodrick, R.J.. "Forward Exchange-Rates As Optimal Predictors of Future Spot Rates - An Econometric-Analysis." Journal of Political Economy 88: 829-853, 1980.

Hansen, L.P., Sargent, T.J. "Formulating and Estimating Dynamic Linear Rational-Expectations Models." Journal of Economic Dynamics & Control 2: 7-46, 1980.

http://home.uchicago.edu/~lhansen/

Thomas John "Tom" Sargent (born July 19, 1943) is an American economist specializing in the fields of macroeconomics, monetary economics and time series econometrics. He is known as "one of the leaders of the rational expectations revolution" and the author of numerous path-breaking papers. Working with Neil Wallace, Sargent developed the saddle path stability characterization of the rational expectations equilibrium and also produced the Policy Ineffectiveness Proposition.

Sargent earned his B.A. from the University of California, Berkeley in 1964, being the University Medalist as Most Distinguished Scholar in Class of 1964, and his Ph.D. from Harvard in 1968. He held teaching positions at the University of Pennsylvania (1970-1971), University of Minnesota (1971-1987), University of Chicago (1991-1998), Stanford University (1998-2002), and is currently the Berkley Professor of Economics and Business at New York University. He is a Fellow of the Econometric Society since 1976 and, since 1987, a Senior Fellow of the Hoover Institution at Stanford University.

[edit] Selected Publications

Sargent, Thomas J. (1971). "A Note on the Accelerationist Controversy". Journal of Money, Credit and Banking 3 (3): 721–25. doi:10.2307/1991369.

Sargent, Thomas J. and Neil Wallace (1973). "The Stability of Models of Money and Growth with Perfect Foresight". Econometrica 41 (6): 1043–48. doi:10.2307/1914034.

Sargent, Thomas J. (1979, 1987). Macroeconomic Theory. New York: Academic Press. ISBN 0-126-19750-4.

Sargent, Thomas J. and Lars P. Hansen (1980). "Formulating and Estimating Dynamic Linear Rational Expectations Models". Journal of Economic Dynamics and Control 2 (1): 7–46.

Sargent, Thomas J. and Neil Wallace (1981). "Some Unpleasant Monetarist Arithmetic". Federal Reserve Bank of Minneapolis Quarterly Review 5 (3): 1–17.

Sargent, Thomas J. (1983). “The Ends of Four Big Inflations” in: Inflation: Causes and Effects, ed. by Robert E. Hall, University of Chicago Press, for the NBER, 1983, p. 41–97.

Sargent, Thomas J. (1987). Dynamic Macroeconomic Theory. Harvard University Press. ISBN 0-674-21877-9.

Sargent, Thomas J. and Albert Marcet (1989). "Convergence of Least Squares Learning Mechanisms in Self-Referential Linear Stochastic Models". Journal of Economic Theory 48 (2).

Sargent, Thomas J. and Albert Marcet (1989). "Convergence of Least Squares Learning in Environments with Hidden State Variables and Private Information". Journal of Political Economy 97 (6): 251. doi:10.1086/261603.

Sargent, Thomas J. and Lars Ljungqvist (2000, 2004). Recursive Macroeconomic Theory. MIT Press. ISBN 0-262-12274-X.

Sargent, Thomas J. and Lars Hansen (2001). "Robust Control and Model Uncertainty". American Economic Review 91 (2): 60–66.

http://homepages.nyu.edu/~ts43/