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Caltech

Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, October 24, 2023
4:00pm to 5:00pm
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Baxter B125
Adapting to Misspecification
Tim Armstrong, Associate Professor, Department of Economics, USC,

Abstract: Empirical research typically involves a robustness-efficiency tradeoff. A researcher seeking to estimate a scalar parameter can invoke strong assumptions to motivate a restricted estimator that is precise but may be heavily biased, or they can relax some of these assumptions to motivate a more robust, but variable, unrestricted estimator. When a bound on the bias of the restricted estimator is available, it is optimal to shrink the unrestricted estimator towards the restricted estimator. For settings where a bound on the bias of the restricted estimator is unknown, we propose adaptive shrinkage estimators that minimize the percentage increase in worst case risk relative to an oracle that knows the bound. We show that adaptive estimators solve a weighted convex minimax problem and provide lookup tables facilitating their rapid computation. Revisiting five empirical studies where questions of model specification arise, we examine the advantages of adapting to -- rather than testing for -- misspecification.

Written with Patrick Kline and Liyang Sun

For more information, please contact Letty Diaz by phone at 626-395-1255 or by email at [email protected].