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1. Introduction. 1.1. Questions about model uncertainty. 1.2. Ten papers about model uncertainty -- 2. Discounted linear exponential quadratic Gaussian control. 2.1. Cost formulation. 2.2. Cost recursions and aggregator functions. 2.3. Infinite horizon costs. 2.4. Arbitrary time-invariant linear control laws. 2.5. Solution to the infinite horizon discounted problem. 2.6. Summary -- 3. Robust permanent income and pricing / Thomas D. Tallarini -- 4. A quartet of semigroups for model specification, robustness, prices of risk, and model detection / Evan W. Anderson -- 5. Robust control and model uncertainty. 5.1. Introduction. 5.2. A benchmark resource allocation problem. 5.3. Model misspecification. 5.4. Two robust control problems. 5.5. Recursivity of the multiplier formulation. 5.6. Two preference orderings. 5.7. Recursivity of the preference orderings. 5.8. Concluding remarks -- 6. Robust control and model misspecification / Gauhar A. Turmuhambetova and Noah Williams -- 7. Doubts or variability? / Francisco Barillas -- 8. Robust estimation and control without commitment. 8.1. Introduction. 8.2. A control problem without model uncertainty. 8.3. Using Martingales to represent model misspecifications. 8.4. Two pairs of operators. 8.5. Control problems with model uncertainty. 8.6. The [symbol] = [symbol] case. 8.7. Implied worst case model of signal distortion. 8.8. A recursive multiple priors model. 8.9. Risk sensitivity and compound lotteries. 8.10. Another example. 8.11. Concluding remarks -- 9. Fragile beliefs and the price of uncertainty. 9.1. Introduction. 9.2. Stochastic discounting and risks. 9.3. Three information structures. 9.4. Risk prices. 9.5. A full-information perspective on agents' learning. 9.6. Price effects of concerns about robustness. 9.7. Illustrating the mechanism. 9.8. Concluding remarks -- 10. Beliefs, doubts and learning: Valuing macroeconomic risk / Lars Peter Hansen -- 11. Three types of ambiguity. 11.1. Illustrative model. 11.2. No concern about robustness. 11.3. Representing probability distortions. 11.4. The first type of ambiguity. 11.5. Heterogeneous beliefs without robustness. 11.6. The second type of ambiguity. 11.7. The third type of ambiguity. 11.8. Comparisons. 11.9. Numerical example. 11.10. Concluding remarks.

Cover -- Half Title -- Title Page -- Copyright Page -- Preface -- Contents -- Chapter 1: Mathematical Preliminaries -- 1.1 Complex Numbers -- 1.2 Sequences -- 1.3 The Algebra of Operators -- 1.4 Introduction to Linear Algebra -- 1.5 Characteristic Roots -- Chapter 2: Introduction to Difference Equations -- 2.1 Applications of Differenc Eequations in Economics -- 2.2 The Concept of a Solution of a Difference Equation -- 2.3 The Solution of the Equation y(t+l) - ay(t) = b -- 2.4 Limiting Behavior of the Solution -- Chapter 3: General Theory of Linear Difference Equations -- 3.1 Introduction -- 3.2 The Homogeneous Linear Difference Equation -- 3.3 Summary -- Chapter 4: Linear Homogeneous Difference Equations with Constant Coefficients -- 4.1 Introduction -- 4.2 The Second Order Case -- 4.3 The n-th Order Case -- 4.4 Limiting Behavior of Solutions of Linear Homogeneous Difference Equations Having Constant Coefficients -- 4.5 Summary -- Chapter 5: Particular Solutions -- 5.1 Introduction -- 5.2 Particular Solution when f(t) is Constant -- 5.3 The Method of Undetermined Coefficients -- 5.4 Summary -- Chapter 6: Solving Linear Difference Equations Using Operators -- Chapter 7: Equilibrium and Stability -- 7.1 Introduction -- 7.2 The Routhian Conditions to Check Stability -- 7.3 Summary -- Chapter 8: Systems of Difference Equations -- Chapter 9: Distributed Lags -- 9.1 Introduction -- 9.2 The Koyck Distributed Lag Model -- 9.3 The Lag Polynomial Operator -- 9.4 The General Distributed Lag Model -- 9.5 Some Frequently Used Lag Distributions -- 9.6 Summary and Conclusions -- Chapter 10: Analysis of Accelerator Models -- 10.1 Introduction -- 10.2 Analysis Using Matrices and Shift Operators -- 10.3 Capital Stock Adjustment Models -- 10.4 Various Criticisms -- 10.5 Moving Equilibrium -- Chapter 11: Linear Dynamic Economic Models -- 11.1 Introduction

Abridged conference paper. Success in adapting the GDR's system to changing technologies and international circumstances; view of Soviet economic reform proposals.

People often wonder why economists analyse models whose assumptions are known to be false, while economists feel that they learn a lot from such exercises. We suggest that part of the knowledge generated by academic economists is case-based rather than rule-based. That is, instead of offering general rules or theories that should be contrasted with data, economists often analyse modelsthat are 'theoretical cases′, which help understand economic problems by drawinganalogies between the model and the problem. Thus, economic models, empiricaldata, experimental results and other sources of knowledge are all on equal footing, that is, they all provide cases to which a given problem can be compared. We offer complexity arguments that explain why case-based reasoning may sometimes be the method of choice and why economists prefer simple cases.

We develop an economic model of terrorism. Groups undertake violent activities to change the status quo when they are unable to bring about drastic political change in the face of limited access to economic opportunity. Furthermore, these groups are more likely to resort to terrorist activity when they face powerful policy-making elites who can't be uprooted easily, by legitimate means or otherwise. If, on the other hand, the elite groups currently in power are weak but can't be removed from power legitimately, the dissident groups are likely to initiate rebellion activity, such as civil wars and coups, to take over the rule of the governing elite themselves. In particular, the model exhibits multiple equilibria. For example, one equilibrium can be sustained where groups with limited access to opportunity may find it rational to engage in terrorist activities while policy-maker elites may find it rational not to engage in opening access to these groups. The result is, then, a pattern of reduced economic activity and increased terrorism. An alternative equilibrium can be sustained where access is more abundant and terrorism is reduced.