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Economic interpretation of probabilities estimated by maximum likelihood or score / D. J. Johnstone in Management science, Vol. 57 N° 2 (Février 2011) 

Public ISBD [article]  in Management science > Vol. 57 N° 2 (Février 2011) . - pp. 308-314 Titre : Economic interpretation of probabilities estimated by maximum likelihood or score Type de document : texte imprimé Auteurs : D. J. Johnstone, Auteur Année de publication : 2011 Article en page(s) : pp. 308-314 Note générale : Management Langues : Anglais (eng) Mots-clés : Probability  forecast  Scoring  rule  Maximum  likelihood  Maximum  score  estimation Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : The conventional method of estimating a probability prediction model by maximum likelihood (MLE) is a form of maximum score estimation with economic meaning. Of all the probabilities that a given model might have produced, those obtained by MLE yield maximum in-sample betting return to a log utility investor. Recognition of this affinity between MLE and log utility begs the wider methodological question of whether different decision makers benefit in different degrees from different probabilities. Probabilities produced by MLE can be either too conservative or too bold relative to those found by maximizing utility under more risk-tolerant or risk-averse score functions. A very (not very) risk-averse user, who bets characteristically small (large) fractions of wealth based on a conservative forecast, is bound to make a rapidly (slowly) increasing bet as the forecast probability becomes progressively bolder or more distant from the market probability. The effect of this interaction between risk aversion and forecast is that a highly risk-averse user may need a much bolder forecast to obtain the same certainty equivalent as a more risk-tolerant investor. It follows more broadly that professional forecasters should anticipate how a client with given risk aversion expects to gain from any given forecast, or forecast revision, before committing resources toward making a better informed (but still honest) forecast. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/57/2/308 [article] Economic interpretation of probabilities estimated by maximum likelihood or score [texte imprimé] / D. J. Johnstone, Auteur . - 2011 . - pp. 308-314. Management Langues : Anglais (eng) in Management science > Vol. 57 N° 2 (Février 2011) . - pp. 308-314 Mots-clés : Probability  forecast  Scoring  rule  Maximum  likelihood  Maximum  score  estimation Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : The conventional method of estimating a probability prediction model by maximum likelihood (MLE) is a form of maximum score estimation with economic meaning. Of all the probabilities that a given model might have produced, those obtained by MLE yield maximum in-sample betting return to a log utility investor. Recognition of this affinity between MLE and log utility begs the wider methodological question of whether different decision makers benefit in different degrees from different probabilities. Probabilities produced by MLE can be either too conservative or too bold relative to those found by maximizing utility under more risk-tolerant or risk-averse score functions. A very (not very) risk-averse user, who bets characteristically small (large) fractions of wealth based on a conservative forecast, is bound to make a rapidly (slowly) increasing bet as the forecast probability becomes progressively bolder or more distant from the market probability. The effect of this interaction between risk aversion and forecast is that a highly risk-averse user may need a much bolder forecast to obtain the same certainty equivalent as a more risk-tolerant investor. It follows more broadly that professional forecasters should anticipate how a client with given risk aversion expects to gain from any given forecast, or forecast revision, before committing resources toward making a better informed (but still honest) forecast. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/57/2/308