SMU SOE Seminar (Nov 22, 2019): Counterfactual Sensitivity and Robustness

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TOPIC:

COUNTERFACTUAL SENSITIVITY AND ROBUSTNESS

ABSTRACT Researchers frequently make parametric assumptions about the distribution of unobservables when formulating structural models. Such assumptions are typically motived by computational convenience rather than economic theory and are often untestable. Counterfactuals can be particularly sensitive to such assumptions, threatening the credibility of structural modeling exercises. To address this issue, we leverage insights from the literature on ambiguity and model uncertainty to propose a tractable econometric framework for characterizing the sensitivity of counterfactuals with respect to a researcher’s assumptions about the distribution of unobservables in a class of structural models. In particular, we show how to construct the smallest and largest values of the counterfactual as the distribution of unobservables spans nonparametric neighborhoods of the researcher’s assumed specification while other “structural” features of the model, e.g. equilibrium conditions, are maintained. Our methods are computationally simple to implement, with the nuisance distribution effectively profiled out via a low-dimensional convex program. Our procedure delivers sharp bounds for the identified set of counterfactuals (i.e. without parametric assumptions about the distribution of unobservables) as the neighborhoods become large. Over small neighborhoods, we relate our procedure to a measure of local sensitivity which is further characterized using an influence function representation. We provide a suitable sampling theory for plug-in estimators and apply our procedure to models of strategic interaction and dynamic discrete choice. Keywords: Robustness, ambiguity, model uncertainty, misspecification, sensitivity analysis. JEL Codes: C14, C18, C54, D81. Click here to view the paper. Click here to view the CV.
		PRESENTER Timothy Christensen New York University
		RESEARCH FIELDS Econometrics Applied Microeconomics Financial Economics
		DATE: 22 November 2019 (Friday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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