AI and Geoeconomics

Méphistophélès in Faust’s study Eugène Delacroix Introducing  “Doubts and Variability” by Rhys Bidder (Federal Reserve Bank of San Francisco) and Matthew E. Smith (Federal Reserve Board). Working Paper (First Draft Sept 4, 2010 – current version Aug 4, 2011). One of the most enduring puzzles in the macrofinance literature is the equity premium puzzle. A manifestation of this puzzle is the difficulty of designing a model that simultaneously generates a substantial market price of risk and a low risk free rate, while also respecting stylized facts regarding consumption dynamics, as discussed by Hansen and Singleton (1982) and Mehra and Prescott (1985). In this paper Bidder and Smith show that the interaction of stochastic volatility in consumption with a fear of model misspecification can bring new pieces to the puzzle. The agent in their heteroskedastic (with time-varying variance) endowment economy does not fully trust the joint conditional distribution of the...

From Wikipedia, the free encyclopedia In information theory , the Shannon–Hartley theorem is an application of the noisy channel coding theorem to the archetypal case of a continuous-time analog communications channel subject to Gaussian noise . The theorem establishes Shannon's channel capacity for such a communication link, a bound on the maximum amount of error-free digital data (that is, information ) that can be transmitted with a specified bandwidth in the presence of the noise interference, under the assumption that the signal power is bounded and the Gaussian noise process is characterized by a known power or power spectral density. The law is named after Claude Shannon and Ralph Hartley . Claude Shannon 's development of information theory during World War II provided the next big step in understanding how much information could be reliably communicated through noisy channels. Building on Hartley's foundation, Shannon's noisy cha...