We propose a model of equilibrium contracting between two agents who are "boundedly rational" in the sense that they face time-costs of deliberating current and future transactions. We show that equilibrium contracts may be incomplete and assign control rights: they may leave some enforceable...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

We use novel data to study the decision to undergo genetic testing by individuals at risk for Huntington disease (HD), a hereditary neurological disorder that reduces healthy life expectancy to about age 50. Although genetic testing is perfectly predictive and carries little financial or time...

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close...

We propose a model of bounded rationality based on time-costs of deliberating current and future decisions. We model an individual decision maker%u2019s thinking process as a thought-experiment that takes time and let the decision maker %u201Cthink ahead%u201D about future decision problems in...

This discussion paper led to a publication in the 'European Economic Review' (2013). Vol. 61, pp. 186-204.<P> Rational Expectations (RE) models have two crucial dimensions: 1) agents correctly forecast future prices given all available information, and 2) given expectations, agents solve...</p>

The rational expectations hypothesis is one of the cornerstones of current economic theorising. This review discusses a number of experiments that focus on expectation formation by human subjects and analyses the implications for the rational expectations hypothesis. The experiments show that...

The paper illustrates how one may assess our comprehensive uncertainty about the various relations in the entire chain from human activity to climate change. Using a modified version of the RICE model of the global economy and climate, we perform Monte Carlo simulations, where full sets of...

We examine the properties of the ASA-NBER forecasts for several US macroeconomic variables, specifically: (i) are the actual and forecast series integrated of the same order; (ii) are they cointegrated, and; (iii) is the cointegrating vector consistent with long run unitary elasticity of...

Forecast evaluation often compares a parsimonious null model to a larger model that nests the null model. Under the null that the parsimonious model generates the data, the larger model introduces noise into its forecasts by estimating parameters whose population values are zero. We observe that...