Hansen advocates for more robust analyses of public policies

To conclude the fifth day of plenary sessions at the 25th Conference of the Society for the Advancement of Economic Theory (SAET), held at IMPA, Nobel Prize in Economics laureate Lars Peter Hansen of the University of Chicago delivered a lecture on Friday (18) titled “Marginal Social Valuation and Robust Policy Assessment”. In his presentation, the economist discussed how to incorporate different forms of uncertainty into the evaluation of public policies, particularly on issues such as climate change, natural capital, and investments in research and development (R&D).

Hansen presented an approach aimed at improving the way the impacts of public policies are assessed. According to the researcher, the goal is to develop tools that help measure these effects more consistently and better understand how different assumptions can influence the results of the analyses.

“My goal is to present these marginal evaluations in a way that is more useful for measuring and understanding how the models behave,” he said.

The economist explained that this work grew out of studies on the social cost of carbon, but that the methodology can also be applied to other issues in public and environmental economics. According to Hansen, analyses of this kind must take into account not only the expected outcomes but also the various sources of uncertainty that can alter estimates over time.

Nobel also discussed the challenges of formulating public policy in the face of uncertain scenarios. In addition to risk—when probabilities are known—he highlighted situations in which different assumptions or methods of analysis can lead to different conclusions and noted that any tool used to predict the effects of a public policy represents a simplification of reality.

“Models, by their very nature, are wrong. The important question is whether they are wrong in a way that really matters or whether that inaccuracy is inconsequential,” he said.

According to Hansen, the challenge is not to eliminate these limitations, but to develop methods capable of verifying whether the conclusions that guide public policy remain consistent even when different scenarios and sources of uncertainty are taken into account.

Held at IMPA, the 25th SAET concludes this Saturday (the 18th) with a tribute to IMPA researcher emeritus Aloisio Araujo, who turned 80 in January.