Model Uncertainty and the Rationality of Economic Policy: An Evolutionary Approach
Posted: 6 Jul 2005
This paper examines the process of economic policy-making under conditions of model uncertainty. A median voter model is introduced in which the electorate is uncertain of the policy measures available as well as their respective outcomes and opinion formation is a social process of communication and contagion. Learning from experience is also considered. It is shown that economic policy-making under uncertainty produces novel policy routines, but that a mechanism of efficiently utilizing the generated knowledge is missing.
Keywords: Economic policy, model uncertainty, collective beliefs, collective learning
JEL Classification: D78, D83, H73
Suggested Citation: Suggested Citation