State-space models have been increasingly used to study macroeconomic and financial problems. A state-space representation consists of two equations, a measurement equation which links the observed variables to unobserved state variables and a transition equation describing the dynamics of the...

This paper develops a general framework to study how misinterpreting information impacts learning. We consider sequential social learning and passive individual learning settings in which individuals observe signals and the actions of predecessors. Individuals have incorrect, or misspecified...

This paper develops a general framework to study how misinterpreting information impacts learning. Our main result is a simple criterion to characterize long-run beliefs based on the underlying form of misspecification. We present this characterization in the context of social learning, then...

Under-reaction is a robust response to model misspecification rewarded by financial markets, rather than an “irrational” attitude that leads to extinction. I show that under-reacting rules guarantee predictions as accurate as Bayes' in well-specified learning problems and beat Bayes' in many...

We establish convergence of beliefs and actions in a class of one-dimensional learning settings in which the agent's model is misspecified, she chooses actions endogenously, and the actions affect how she misinterprets information. Our stochastic-approximation-based methods rely on two crucial...

We model inter-temporal ambiguity as the scenario in which a Bayesian learner holds more than one prior distribution over a set of parameters and provide necessary and sufficient condition for ambiguity to fade away because of learning. Our condition applies to most learning environments: iid...

This paper demonstrates that a misspecified model of information processing interferes with long-run learning and allows inefficient choices to persist in the face of contradictory public information. I consider an observational learning environment where agents observe a private signal about a...

This paper demonstrates that a misspecified model of information processing interferes with long-run learning and offers an explanation for why individuals may continue to choose an inefficient action, despite sufficient public information to learn the true state. I consider a social learning...

Do elementary statistics or equilibrium theory deliver any rules of thumb regarding how we should argue in debates? We suggest a framework for normative analysis of debates. In our framework, each discussant wants the audience to believe that the actual state coincides with the discussant's...

This chapter presents an overview of the existing learning models in the economic literature. Furthermore, it discusses the choice of models that should be used under various circumstances and how adequate learning models can be chosen in simulation approaches. It gives advice for using the many...