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Simulating an empirical paper by the rational economist

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  • Martin Paldam

    (Aarhus University)

Abstract

Papers in economics often try to find the ‘best’ estimate of a parameter. If researchers behave as predicted by economic theory, the research process can be modeled and simulated. The ‘best’ estimate is selected from $$J$$ J regression experiments by a selection rule, SR, which gives the researcher’s preferences for the fit (significance) and size of the estimated parameter. Eight $$J$$ J s and five SRs are considered. To find a stable pattern for all 40 cases, 70 million regressions are simulated. The key results are: (1) All rational SRs cause the selected estimate to be substantially biased in the direction of the priors of the researcher. (2) All such rules give almost the same bias. It can be assessed from a set of estimates, and (3) the standard PET estimate of the meta-average reduces the bias by more than 90 %.

Suggested Citation

  • Martin Paldam, 2016. "Simulating an empirical paper by the rational economist," Empirical Economics, Springer, vol. 50(4), pages 1383-1407, June.
    • Handle: RePEc:spr:empeco:v:50:y:2016:i:4:d:10.1007_s00181-015-0971-6
    DOI: 10.1007/s00181-015-0971-6
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    References listed on IDEAS

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    Cited by:

    1. Paldam Martin, 2021. "Methods Used in Economic Research: An Empirical Study of Trends and Levels," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 28-42, January.
    2. Paldam, Martin, 2018. "A model of the representative economist, as researcher and policy advisor," European Journal of Political Economy, Elsevier, vol. 54(C), pages 5-15.

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    More about this item

    Keywords

    Meta-analysis; Selection of regressions; Publication bias;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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