Series: The Gorman Lectures in Economics

It is widely held that Bayesian decision theory is the final word on how a rational person should make decisions. However, Leonard Savage—the inventor of Bayesian decision theory—argued that it would be ridiculous to use his theory outside the kind of small world in which it is always possible to "look before you leap." If taken seriously, this view makes...

A guide to the economic modelling of household preferences from two leaders in the field. A common set of mathematical tools underlies dynamic optimisation, dynamic estimation, and filtering. In Recursive Models of Dynamic Linear Economies, Lars Peter Hansen and Thomas Sargent use these tools to create a class of econometrically tractable models of prices and quantities. They present examples from...