Lars Peter Hansen

Wrestling With Uncertainty in Climate Economic Models


Abstract

My talk will use insights from decision theory under uncertainty to explore research challenges in climate economics drawing on joint research with William Brock. Our research embraces a broad perspective of uncertainty with three components: risk (probabilities assigned by a given model), ambiguity (level of confidence in alternative models), and misspecification (potential shortfalls in existing models). We survey recent climate science research that exposes the uncertainty in climate dynamics that is pertinent in economic analyses and relevant for using models to provide policy guidance. The uncertainty components and their implications for decision theory help us frame this evidence and expose the modeling and evidential challenges.


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