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Robust Confidence Regions for Incomplete Models

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  • Larry G. Epstein
  • Hiroaki Kaido
  • Kyoungwon Seo

Abstract

Call an economic model incomplete if it does not generate a probabilistic prediction even given knowledge of all parameter values. We propose a method of inference about unknown parameters for such models that is robust to heterogeneity and dependence of unknown form. The key is a Central Limit Theorem for belief functions; robust confidence regions are then constructed in a fashion paralleling the classical approach. Monte Carlo simulations support tractability of the method and demonstrate its enhanced robustness relative to existing methods.

Suggested Citation

  • Larry G. Epstein & Hiroaki Kaido & Kyoungwon Seo, 2016. "Robust Confidence Regions for Incomplete Models," Econometrica, Econometric Society, vol. 84, pages 1799-1838, September.
    • Handle: RePEc:wly:emetrp:v:84:y:2016:i::p:1799-1838
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    Cited by:

    1. Safra, Zvi & Segal, Uzi, 2022. "A lot of ambiguity," Journal of Economic Theory, Elsevier, vol. 200(C).
    2. Xiaoyu Cheng, 2022. "Robust Data-Driven Decisions Under Model Uncertainty," Papers 2205.04573, arXiv.org.
    3. Chen, Zengjing & Epstein, Larry G. & Zhang, Guodong, 2023. "A central limit theorem, loss aversion and multi-armed bandits," Journal of Economic Theory, Elsevier, vol. 209(C).
    4. Chen, Zengjing & Epstein, Larry G., 2022. "A central limit theorem for sets of probability measures," Stochastic Processes and their Applications, Elsevier, vol. 152(C), pages 424-451.
    5. Molinari, Francesca, 2020. "Microeconometrics with partial identification," Handbook of Econometrics, in: Steven N. Durlauf & Lars Peter Hansen & James J. Heckman & Rosa L. Matzkin (ed.), Handbook of Econometrics, edition 1, volume 7, chapter 0, pages 355-486, Elsevier.
    6. Undral Byambadalai, 2022. "Identification and Inference for Welfare Gains without Unconfoundedness," Papers 2207.04314, arXiv.org.
    7. Zvi Safra & Uzi Segal, 2018. "A Lot of Ambiguity," Boston College Working Papers in Economics 954, Boston College Department of Economics, revised 31 Mar 2020.
    8. Hyejin Cho, 2017. "Economics Of Regulation: Credit Rationing And Excess Liquidity," Post-Print hal-01375423, HAL.
    9. Hiroaki Kaido & Yi Zhang, 2019. "Robust Likelihood Ratio Tests for Incomplete Economic Models," Papers 1910.04610, arXiv.org, revised Dec 2019.
    10. Francesca Molinari, 2019. "Econometrics with Partial Identification," CeMMAP working papers CWP25/19, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    11. Shuowen Chen & Hiroaki Kaido, 2022. "Robust Tests of Model Incompleteness in the Presence of Nuisance Parameters," Papers 2208.11281, arXiv.org, revised Sep 2023.
    12. Leung, Michael P., 2019. "A weak law for moments of pairwise stable networks," Journal of Econometrics, Elsevier, vol. 210(2), pages 310-326.

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