Exploring the usefulness of a nonrandom holdout sample for model validation: Welfare effects on female behavior

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Journal Article
International Economic Review, 2007, 48 (4), pp. 1351 - 1378
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A particularly challenging use of decision-theoretic models in economics is to forecast the impact of large changes in the environment. The problem we explore in this article is how to gain confidence in a model's ability to predict the impact of such large changes. We show that an approach to validation and model selection that includes the choice of a "nonrandom holdout sample," a sample that differs significantly from the estimation sample along the policy dimension that the model is meant to forecast, can be fruitful. © 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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