Cover: A note on prediction errors

A note on prediction errors

Published 1976

by Rolla Edward Park

Purchase Print Copy

 Format Price
Add to Cart Paperback4 pages $20.00

A lot of applied econometric work consists of estimating a regression equation using cross sectional data, then using the equation to predict extra-sample values of the dependent variable. The analyst should report not only predictions, but estimates of the precision of predictions as well. This is very seldom done in practice. Two possible reasons are: (1) Adding confidence intervals to predicted values triples the data reported. (2) The analyst may believe that the reported in-sample standard error of estimate gives a good indication of goodness of extra-sample predictions. Relative to reason (1), the author suggests a summary measure of the goodness of a set of predictions that could be reported. Relative to reason (2), he shows that the in-sample standard error of estimate is generally not a good indication of the quality of extra-sample predictions.

This report is part of the RAND paper series. The paper was a product of RAND from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.