decision theory in econometrics

Keisuke Hirano
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

The decision-theoretic approach to statistics and econometrics explicitly specifies a set of models under consideration, a set of actions that can be taken, and a loss function that quantifies the value to the decision-maker of applying a particular action when a particular model holds. Decision rules, or procedures, map data into actions, and can be ordered according to their Bayes, minmax, or minmax regret risks. Large sample approximations can be used to approximate complicated decision problems with simpler ones that are easier to solve. Some examples of applications of decision theory in econometrics are discussed.
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How to cite this article

Hirano, Keisuke. "decision theory in econometrics." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 02 September 2010 <http://www.dictionaryofeconomics.com/article?id=pde2008_D000244> doi:10.1057/9780230226203.0365

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Table of Contents

  • Abstract
  • Keywords
  • Article
    • Basic framework
    • Ordering decision rules
    • Asymptotic statistical decision theory
    • Applications in economics
      • Portfolio choice
      • Treatment choice
      • Model uncertainty and macroeconomic policy
      • Instrumental variables models
      • Time series models
      • Auction and search models
  • See Also
  • Bibliography
  • How to cite this article
 
 

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