Mincer-zarnovitz quantile and expectile regressions for forecast evaluations under asymmetric loss functions: Working paper series--14-01

Forecast is pervasive in all areas of applications in business and daily life and, hence, evaluating the accuracy of a forecast is important for both the generators and consumers of forecasts. There are two aspects in forecast evaluation: (1) measuring the accuracy of past forecasts using some summary statistics and (2) testing the optimality properties of the forecasts through some diagnostic tests. On measuring the accuracy of a past forecast, we illustrate that the summary statistics used should match the loss function that was used to generate the forecasts. If there is strong evidence that an asymmetric loss function has been used in the generation of a forecast, then a summary statistic that corresponds to that asymmetric loss function should be used in assessing the accuracy of the forecast instead of the popular RMSE or MAE. On testing the optimality of the forecasts, we demonstrate how the quantile regressions and expectile regressions set in the prediction-realization framework of Mincer and Zarnowitz (1969) can be used to recover the unknown parameter that controls the potentially asymmetric loss function used in generating the past forecasts. Finally, we apply the prediction-realization framework to the Federal Reserve's economic growth forecast and forecast sharing in a PC manufacturing supply chain. We find that the Federal Reserves values over prediction approximately 1.5 times more costly than under prediction. We also find that the PC manufacturer weighs positive forecast errors (under forecasts) about four times as costly as negative forecast errors (over forecasts)

A Study of Zero-Out Auctions: Testbed Experiments of a Process of Allocating Private Rights to the Use of Public Property

The study examines a proposal to auction rights to land at a major airport and return the auction revenues to the winners. Experiments with such auctions are reported. New econometric models of the process are developed and evaluated

Private R&D and Second Sourcing in Procurement: An Experimental Study

This study focuses on two topics in government procurement problems: second sourcing, and private research and development investment procurement. A simple theoretical framework is developed to analyze the likely effects on private R&D and procurement prices of recent proposals regarding competition in procurement and the associated data0rights policy. The framework is also used to demonstrate a major flaw in the current methodology used in the evaluation of the benefits of sourcing. IN procurement environments where private R&D is an important factor and potential sellers have commercial markets which may be adversely affected, second sourcing may reduce competition in the initial procurement stage. Experimental methods are used to test for the existence of the effect

A Study of Zero-Out Auctions: Testbed Experiments of a Process of Allocating Private Rights to the Use of Public Property

The study examines a proposal to auction rights to land at a major airport and return the auction revenues to the winners. Experiments with such auctions are reported. New econometric models of the process are developed and evaluated

A Simplified Approach

first price auctions, asymmetric auctions, structural econometrics, nonparametric estimation * Internal Accession Date Only © Copyright Hewlett-Packard Company 2004 We present an approach to non-parametric estimation of pseudo-values in asymmetric affiliated private values (APV) models for first-price auctions that eliminates the 'curse of dimensionality. ' We show that pseudo-values can be estimated by using two-dimensional functions of bids for APV models regardless of the form asymmetry

Pre-auction investment and equivalence of auctions

In this thesis we investigate some extensions of game theoretic auction models and models of R&D by allowing the participants' cost of producing an indivisible object to be determined by their R&D decisions prior to the auctioning of a fixed price production contract. We establish that when the production cost distributions are endogenously determined as a result of private investment expenditures which are only privately observable, first and second price auctions are equivalent: both give rise to the same level of total investment, same reserve price, same expected price to the buyer and same expected level of profits for the sellers, at the symmetric Nash equilibria. This is an extension of the equivalence results known in the context of standard independent private value auction models with risk neutral bidders. We also show using a discrete cost model that, when investment is observable, the requirement of subgame perfection eliminates the symmetric investment equilibrium from the set of equilibria in pure strategies, and the only pure strategy equilibria are asymmetric. The buyer's optimal response to this asymmetry in the investment equilibria is to reduce her reserve price so that equilibrium total investment level is lower when the buyer knows that the sellers know one another's investment levels. We also consider ex ante incentives to collude under first and second price auctions and find that equilibrium patterns of collusion differ significantly. Finally, we report some experimental results