Misspecified Model Estimation and Its Impact on Predictions

2023/09/15 by Lin Hu, He, Junnan, Matthew Kovach +4
Economics, Econometrics and Finance · Social Sciences · #Corruption and Economic Development #Economic Policies and Impacts #FOS: Economics and business #Media Influence and Politics #Theoretical Economics (econ.TH)

paper · pdf · doi:10.48550/arxiv.2309.08740

openalex publication_date 2023/09/15 · openalex created_date 2023/09/21 · openalex updated_date 2026/07/28

Abstract

We study a linear statistical model where outcomes depend on regressors with fixed population coefficients and observation-specific latent coefficients, along with measurement errors. A decision-maker estimates population coefficients and uses the estimates to predict the latent coefficients for a given observation. We analyze how misspecification of some population coefficients distorts predictions, investigating comparative statics with respect to: (1) residual information in regressors associated with misspecified coefficients after projecting out those associated with free coefficients, (2) alignment between misspecification vector and latent-to-coefficient mapping. Applications include employee rating with unconscious bias and LLM-mediated consumer research.

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