Ken Kasa - Department of Economics, Simon Fraser University
Office: WMX 2666
Phone: 778-782-5406

Short CV


Working Papers

       Gresham's Law of Model Averaging  (with In-Koo Cho)   forthcoming in American  Economic Review

      ABSTRACT:  A decision maker doubts the stationarity of his environment. In response, he uses two models, one with
      time-varying parameters, and another with constant parameters. Forecasts are then based on a Bayesian Model Averaging
      strategy, which mixes forecasts from the two models. In reality, structural parameters are constant, but the (unknown) true
      model features expectational feedback, which the reduced form models neglect. This feedback permits fears of parameter
      instability to become self-confirming. Within the context of a standard asset pricing model, we use the tools of large
      deviations theory to show that even though the constant parameter model would converge to the Rational Expectations
      Equilibrium if considered in isolation, the mere presence of an unstable alternative drives it out of consideration.

      Risk, Uncertainty, and the Dynamics of Inequality  (with Xiaowen Lei)  forthcoming in Journal of Monetary Economics

      ABSTRACT:  This paper studies the dynamics of wealth inequality in a continuous-time Blanchard/Yaari model. Its key
      innovation is to assume that idiosyncratic investment returns are subject to (Knightian) uncertainty. In response, agents
      formulate `robust' portfolio policies (Hansen and Sargent (2008)). These policies are nonhomothetic; wealthy agents invest
      a higher fraction of their wealth in uncertain assets yielding higher mean returns. This produces an endogenous feedback
      mechanism that amplifies inequality. It also produces an accelerated rate of convergence, which helps resolve a puzzle recently
      identified by Gabaix, Lasry, Lions, and Moll (2016). We ask the following question - Suppose the US was in a stationary
      distribution in 1980, and the world suddenly became more `uncertain'. Could this uncertainty explain both the magnitude and
       pace of recent US wealth inequality? Using detection error probabilities to discipline the degree of uncertainty, we conclude
       that an empirically plausible increase in uncertainty can account for about half of the recent increase in top wealth shares.

      A Behavioral Defense of Rational Expectations

      ABSTRACT:  This paper studies decision making by agents who value optimism, but are unsure of their environment. As in
      Brunnermeir and Parker (2005), an agent's optimism is assumed to be tempered by the decision costs it imposes. As in
      Hansen and Sargent (2008), an agent's uncertainty about his environment leads him to formulate `robust' decision rules. It is
      shown that when combined, these two considerations can lead agents to adhere to the Rational Expectations Hypothesis.
      Rather than being the outcome of the sophisticated statistical calculations of an impassive expected utility maximizer, Rational
      Expectations can instead be viewed as a useful approximation in environments where agents struggle to strike a balance
      between doubt and hope.