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The Regression Tournament: A Novel Approach to Prediction Model Assessment

  • Adi Schnytzer

    ()

    (Bar-Ilan University)

  • Janez Šušteršič

    (University of Primorska)

Standard methods to assess the statistical quality of econometric models implicitly assume there is only one person in the world, namely the forecaster with her model(s), and that there exists an objective and independent reality to which the model predictions may be compared. However, on many occasions, the reality with which we compare our predictions and in which we take our actions is co-determined and changed constantly by actions taken by other actors based on their own models. We propose a new method, called a regression tournament, to assess the utility of forecasting models and taking these interactions into account. We present an empirical case of betting on Australian Rules Football matches where the most accurate predictive model does not yield the highest betting return, or, in our terms, does not win a regression tournament.

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File URL: http://www.biu.ac.il/soc/ec/wp/2011-10.pdf
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Paper provided by Bar-Ilan University, Department of Economics in its series Working Papers with number 2011-10.

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Date of creation: Mar 2011
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Handle: RePEc:biu:wpaper:2011-10
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  1. Bar-El, Ronen & García-Muñoz, Teresa & Neuman, Shoshana & Tobol, Yossi, 2010. "The Evolution of Secularization: Cultural Transmission, Religion and Fertility Theory, Simulations and Evidence," IZA Discussion Papers 4980, Institute for the Study of Labor (IZA).
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  5. Young, Andrew & Higgins, Matthew & Levy, Daniel, 2007. "Sigma Convergence versus Beta Convergence: Evidence from U.S. County-Level Data," MPRA Paper 2714, University Library of Munich, Germany.
  6. Daniel Levy & Hainpeng (Allan) Chen & Sourav RayAuthor-Name: Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Emory Economics 0408, Department of Economics, Emory University (Atlanta).
  7. Ravi Kanbur & Hillel Rapoport, 2005. "Migration selectivity and the evolution of spatial inequality," Journal of Economic Geography, Oxford University Press, vol. 5(1), pages 43-57, January.
  8. Leonid V. Azarnert, 2008. "Involuntary Integration in Public Education, Fertility and Human Capital," Working Papers 2008-07, Bar-Ilan University, Department of Economics.
  9. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Paper Series 17_11, The Rimini Centre for Economic Analysis.
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