Four types of ignorance

Lars Peter Hansen, Thomas J. Sargent

    Research output: Contribution to journalArticlepeer-review


    This paper studies alternative ways of representing uncertainty about a law of motion in a version of a classic macroeconomic targetting problem of Milton Friedman (1953). We study both "unstructured uncertainty" - ignorance of the conditional distribution of the target next period as a function of states and controls - and more "structured uncertainty" - ignorance of the probability distribution of a response coefficient in an otherwise fully trusted specification of the conditional distribution of next period's target. We study whether and how different uncertainties affect Friedman's advice to be cautious in using a quantitative model to fine tune macroeconomic outcomes.

    Original languageEnglish (US)
    Pages (from-to)97-113
    Number of pages17
    JournalJournal of Monetary Economics
    StatePublished - Jan 1 2015


    • Expected utility
    • Model misspecification
    • Risk
    • Robustness
    • Uncertainty

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics


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