The Annual Hicks Lecture 2023 presented by Professor Isaiah Andrews, MIT Economics, Professor of Economics, Co-Editor of the American Economic Review, MacArthur Fellow (2020), John Bates Clark Medal (2021).
Parameter estimates in misspecified models often converge to pseudo-true parameter values, which minimize a population objective function. Pseudo-true values often differ from quantities of economic interest, raising questions of how, if at all, they are relevant for decision-making. To study this question we consider Bayesian decision-makers facing a population minimum distance problem. Within a class of priors motivated by the minimum distance objective, we characterize prior sequences under which posteriors concentrate on the pseudo-true value. This convergence is fragile to small changes in priors, implying that pseudo-true values are relevant for decision-making only in special cases. Constructive results are nevertheless possible in this setting, and we derive simple confidence intervals that guarantee correct average coverage for the true parameter under every prior in the class we study, with no bound on the magnitude of misspecification.
Lecture presented: 6th June 2024, Manor Road Building, Oxford
economics.web.ox.ac.uk/