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arXiv · 1903.00716

Model Selection in Utility-Maximizing Binary Prediction

Jiun-Hua Su
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Abstract

The maximum utility estimation proposed by Elliott and Lieli (2013) can be viewed as cost-sensitive binary classification; thus, its in-sample overfitting issue is similar to that of perceptron learning. A utility-maximizing prediction rule (UMPR) is constructed to alleviate the in-sample overfitting of the maximum utility estimation. We establish non-asymptotic upper bounds on the difference between the maximal expected utility and the generalized expected utility of the UMPR. Simulation results show that the UMPR with an appropriate data-dependent penalty achieves larger generalized expected utility than common estimators in the binary classification if the conditional probability of the binary outcome is misspecified.

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Jiun-Hua Su. 2019-03-02. Model Selection in Utility-Maximizing Binary Prediction. https://doi.org/10.1016/j.jeconom.2020.07.052

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