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Research Highlights

Model Selection in Utility-Maximizing Binary Prediction (published in JOURNAL OF ECONOMETRICS)

  • Author Jiun-Hua Su
  • Abstract The semiparametric maximum utility estimation proposed by Elliott and Lieli (2013) can be viewed as cost-sensitive binary classification; thus, its in-sample overfitting issue is similar to that of perceptron learning in the machine learning literature. Based on structural risk minimization, a utility-maximizing prediction rule (UMPR) is constructed to alleviate the in-sample overfitting of the maximum utility estimation. We establish non-asymptotic upper bounds on the difference between the maximal expected utility and the generalized expected utility of the UMPR. Simulation results show that the UMPR with an appropriate data-dependent penalty achieves larger generalized expected utility than some common estimators in the traditional binary classification if the conditional probability of the binary outcome is misspecified.
  • Link https://www.sciencedirect.com/science/article/pii/S0304407620303420(Open New Window)