Prediction With Misspecified Models

Amer Economic Assoc
Publication Type:
Journal Article
American Economic Review, 2012, 102 (3), pp. 482 - 486
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Many decision-makers in the public and private sectors routinely consult the im- plications of formal economic and statistical models in their work. Especially in large organizations and for important decisions, there are often competing models. Of course no model under consideration is a literal representation of reality for the purposes at hand .more succinctly, no model is .true..and di¤erent models focus on di¤erent aspects of the relevant environment. This fact can often be supported by formal econometric tests concluding that the models at hand are, indeed, misspecified in various dimensions.
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