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Sensitivity analysis

1. A method for the assessment of the robustness of predictions of a model to varriations in the model assumptions. An example of sensitivity analysis in econometrics is the investigation of the robustness of the significance and of the predicted theoretical sign of the relationship between the dependent variable and each explanatory variable against variations in the set of explanatory variables. 2. A method of assessment of a risky investment project based on a number of possible realizations for the macroeconomic and project-specific factors that determine the value of the project, where in computations the factors are changed one at a time. Typically, three realizations – pessimistic, most likely, and optimistic – are considered for each factor. See also scenario analysis.

Reference: Oxford Press Dictonary of Economics, 5th edt.