Robust Misspecified Models
Abstract
This paper studies which misspecified models are likely to persist when decision-makers compare them with competing models. The main result characterizes such models based on two features that can be derived from primitives: The model’s asymptotic accuracy in predicting the equilibrium distribution of observed outcomes and the “tightness” of the prior around such equilibria. Misspecified models can be robust, persisting against any arbitrary competing model—including the true model—despite decision-makers observing an infinite amount of data. Moreover, simple misspecified models equipped with entrenched priors can be more robust than complex correctly specified models. (JEL C11, C52, D11, L82)
Fields of Study & Subjects
Climate Change Policy and Economics
Capital Investment and Risk Analysis
Decision-Making and Behavioral Economics
Publication details
- Journal / source
- American Economic Review
- Publisher
- American Economic Association
- Volume
- 116
- Issue
- 4
- Pages
- 1340–1379
- Publication date
- 31 March 2026
- Language
- EN