Decisionmetrics: A Decision-Based Approach to Econometric Modeling
Spyros Skouras ()
Working Papers from Santa Fe Institute
Abstract:
In many applications it is necessary to use a simple and therefore highly misspecified econometric model as the basis for decision-making. We propose an approach to developing a possibly misspecified econometric model that will be used as the beliefs of an objective expected utility maximiser. A discrepancy between model and ÔtruthÕ is introduced that is interpretable as a measure of the modelÕs value for this decision-maker. Our decision-based approach utilises this discrepancy in estimation, selection, inference and evaluation of parametric or semiparametric models. The methods proposed nest quasi-likelihood methods as a special case that arises when model value is measured by the Kullback-Leibler information discrepancy and also provide an econometric approach for developing parametric decision rules (e.g. technical trading rules) with desirable properties. The approach is illustrated and applied in the context of a CARA investorÕs decision problem for which analytical, simulation and empirical results suggest it is very effective.
Keywords: Decision theory; econometric modeling; financial decision-making (search for similar items in EconPapers)
Date: 2001-11
New Economics Papers: this item is included in nep-ecm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Related works:
Journal Article: Decisionmetrics: A decision-based approach to econometric modelling (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:wop:safiwp:01-11-064
Access Statistics for this paper
More papers in Working Papers from Santa Fe Institute Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().