Editing Systematic risk (section)

===In heterogeneous agent models===

While the inclusion of aggregate risk is common in [[macroeconomic model]]s, considerable challenges arise when researchers attempt to incorporate aggregate uncertainty into models with [[heterogeneous agents]]. In this case, the entire distribution of allocational outcomes is a [[state variable]] which must be carried across periods. This gives rise to the well-known [[curse of dimensionality]]. One approach to the dilemma is to let agents ignore attributes of the aggregate distribution, justifying this assumption by referring to [[bounded rationality]]. Den Haan (2010) evaluates several algorithms which have been applied to solving the Krusell and Smith (1998) model, showing that solution accuracy can depend heavily on solution method.<ref>{{cite journal |last=den Haan |first=W. |year=2010 |title=Comparison of Solutions to the Incomplete Markets Model with Aggregate Uncertainty |journal=Journal of Economic Dynamics & Control |volume=34 |issue=1 |pages=4–27 |doi=10.1016/j.jedc.2008.12.010 }}</ref><ref>{{cite journal |last1=Krusell |first1=P. |last2=Smith Jr. |first2=A. |year=1998 |title=Income and Wealth Heterogeneity in the Macroeconomy |journal=[[Journal of Political Economy]] |volume=106 |issue=5 |pages=867–896 | doi = 10.1086/250034 |s2cid=17606592 }}</ref> Researchers should carefully consider the results of accuracy tests while choosing solution methods and pay particular attention to grid selection.{{according to whom|date=May 2014}}