A BEJTE Topics article.

Abstract

This paper considers the robustness of optimal decisions in a model of monopoly and a model of competitive equilibrium in a securities market. Robustness, defined as payoffs being continuous with respect to perturbations in the underlying model, fails to hold for either model. Decision rules are made robust by appropriately "smoothing" the problem, and by decreasing the weight given to small details of belief that can cause large changes in optimal payoffs.

Submitted: January 30, 2003 · Accepted: May 6, 2003 · Published: May 8, 2003

Originally published in Topics in Theoretical Economics.

Recommended Citation

Prasad, Kislaya (2003) "Non-robustness of some economic models," Topics in Theoretical Economics: Vol. 3 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejte/topics/vol3/iss1/art1