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arXiv · 2309.08740

Misspecified Model Estimation and Its Impact on Predictions

Junnan He·Lin Hu·Matthew Kovach·Anqi Li
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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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econ.TH

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Junnan He, Lin Hu, Matthew Kovach, Anqi Li. 2023-09-15. Misspecified Model Estimation and Its Impact on Predictions. https://arxiv.org/abs/2309.08740

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